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Customer Loyalty and Frequency
Marketing
Stowe Shoemaker, PhD
Cornell University Executive Education Faculty
University of Houston
sshoemaker@uh.edu
www.stoweshoemaker.net
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Whom Am I, and Why I am Teaching
This Course?
• Current Position
• Academic Background
• Research Background
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Class Times
• To be addressed
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Who Are You, and Why Are You Taking
This Course?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Goals For Class - (or, what you will know
by end of class)
•
•
•
•
•
Difference between frequency and loyalty
Customer Relationship Management and loyalty
Why loyalty is important
How to calculate life-time value of a customer
How to create customer loyalty within your
organization
• Technology and customer loyalty
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Goals For Class - (or, what you will know
by end of class)
•
•
•
•
How to create value
Metrics to use to evaluate a loyalty program
Complaint management and service recovery
Case studies
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Group Project
• Develop a loyalty program for Cabo San
Viejo (case study)
• Program can be anything you want it to be
• Can or cannot be a points based program
• Hotels and airlines have Freddie Awards, we
have Hotelie Award
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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not at all 1 2 3 4 5 6 7
#1
Creativity
Originality
Incorporates class
material
This group had fun
The customer will want
to belong to this program
It is feasible
TOTAL
#2
does extremely well
#3
#4
#5
#6
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Questions to motivate discussion
• Name two products or services to which you
consider yourself extremely loyal.
• What has produced that loyalty?
• How frequently do you buy this product or
service?
• What do you tell your friends about this
product or service?
• What do you tell your family?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
WOM
Consumer Buying Process
Brand
Advocate
Trial (Initial Purchase)
Pre arrival contact
Repeat Purchase
Loyalty
Circle
Components
Barriers
a.
b.
c.
Satisfaction
Dissatisfaction
Switching costs
Perceived risks
Lack of information
Need
Recognition
Awareness/
Search/Evoked Set
Complain
Switch
Why Switch?
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Evolution of How Marketing Defined
4 P’s
7 P’s
14 C’s
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Four P’s of Product Marketing?
•
•
•
•
P
P
P
P
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Seven P’s of Services Marketing?
•
•
•
•
•
•
•
P
P
P
P
P
P
P
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Fourteen C’s of Marketing – help create
value
•
•
•
•
Customer
Categories of offerings
Capabilities of firm
Cost, profitability and
value
• Control of process
• Collaboration within
firm
• Cost to the customer
• Customization
• Communications
• Customer
measurement
• Customer care
• Chain of relationships
• Competition
• Capacity
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Customer Loyalty/Relationship
Marketing Does Not Equal Frequency
Marketing
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Frequency . . . Focusing on Behavior
When customers give you a greater share
of their transactions than they might
have without the program, usually in
exchange for accumulating miles, points,
or other surrogate discounts.
You ask: Aren’t we quibbling here, isn’t that
loyalty?
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Commercial on Frequency
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Drawbacks of Frequency
• Exclusive focus on behavior ignores the emotional
and psychological factors that build real
commitment.
• Without that commitment the customer focuses on
“the deal,” not the brand or product relevance.
• A behavior focus makes bribing the customer
irresistible.
• Erodes the brand and diminishing product
differentiation.
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Commercial on Loyalty
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Loyalty . . . Focusing on Emotion
When the customer feels so strongly that
you can best meet his or her relevant needs,
your competition is virtually excluded from
the considered set, and the customer buys
almost exclusively from you — referring to
you as “their restaurant” or “their hotel.”
Winning maximum share of heart, mind and
wallet.
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Like a Marriage
• “The sale merely consummates the courtship.
• Then the marriage begins. How good the
marriage is depends on how well the
relationship is managed by the seller.
• It is more a matter of what the buyer wants.
• He wants a vendor
• who will keep his promises,
• who'll keep supplying and stand behind
what he promised.
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
How It Plays
Out
Traditional
Frequency
Real
Loyalty
Objectives
Build traffic,
sales and
profits.
Build sales, profits
and the brand.
Strategy
Incentive
repeat
transactions.
Build personal
brand
relationship.
Focus
A segment’s
behavior and
profitability.
An individual’s
emotional and
rational needs, and
their value.
How It Plays Out
Objectives
Tactics
Traditional
Frequency
Segmented rewards:
• Transaction status
• Free/discounted
product
• Collateral product
discounts
• Rational rewards: points,
miles
• Rewards “menu”
Measurement
• Transactions
• Sales growth
• Cost structure
Real
Loyalty
Customized recognition:
• Individual value, tenure
• Preferred access, service,
“inside information”
• Value-added upgrades, addons
• Emotional, “trophy” rewards
• Tailored offers/messages
• Individual LTV
• Attitudinal change
• Emotional response
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The Benefits of Real Loyalty
• “Loyal customers tend to maintain their positive
expectations relatively longer than low-loyalty
consumers, so they are not likely to adjust
expectations based on episodic factors”
• “Loyal customers tend to show:
•
•
•
•
a special preference, attachment, commitment,
positive WOM,
low switching to competitive brands,
willingness to pay premium price”
(Youjae and Suna, 2004).
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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The Benefits of Real Loyalty
• The customer focuses on your brand, offers and
messages to the exclusion of the competition.
• Price is no longer the dominant consideration, but
one component in the larger value proposition.
• Loyalty provides critical inoculation.
• Competitive offers face a higher hurdle.
• The customer becomes more forgiving — goodwill
equity.
• Loyalty begets loyalty.
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Why Hotels Should Be Concerned about
Customer Loyalty
• Customer loyalty leads to increased profit
• Customer loyalty leads to increased partnership
• Lower marketing and sales costs
• Lower transaction costs
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Lessons Learned From Research in Hotels
• Loyal customers are less likely to ask about price
when making a reservation
• Loyal customers are willing to serve on advisory
panels
• Loyal customers claim they will use purchase
other offered services
• Loyal customers more likely to report service
failures
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Lessons Learned From Research in Hotels
Restaurants and WOM
• A loyal customer in a restaurant tells a
median of 10 people
• A loyal customer in a luxury hotel tells a
median of 12 people
• 52.3% claimed that they would go out of
their way to mention restaurant when the
topic of restaurants comes up
• 19.3% claimed that they would go out of
their way to mention hotel when the topic
of hotels comes up
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Lessons Learned From Research in
Restaurants
• 69% read the communication (letters, emails, promotional material) they receive
from the restaurant to which they are loyal
(8,9,10 rating)
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Lessons Learned From Research in
Restaurants - tipping
1 to 10 scale, with 1 being “I tip much less” to 10 “I tip
much more,”
• 47.2% among the total sample chose the
top three boxes.
• Ten or more visits in the past three
months, 56.1% chose the top three boxes
• Five to nine times (49.1%)
• Three to four times (41.5%)
• Less than three times (43.1%)
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Partnership Activities in Restaurants
CUSTOMER
LOYALTY
Commitment
.266
Perceived Value
Satisfaction
.168
.042
Partnership
Activities
(share ideas)
.185
Trust
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Partnership Activities in Restaurants
CUSTOMER
LOYALTY
Commitment
.353
Perceived Value
.326
Word of Mouth
Satisfaction
.292
.519
Trust
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Partnership Activities in Restaurant
CUSTOMER
LOYALTY
Commitment
.250
Perceived Value
Satisfaction
.201
.102
Partnership
Activities
(fix problems)
.307
Trust
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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.63*
.66*
Certainty
Value
.97*
.63*
.51*
.17**
What Impacts
Loyalty in Hotels
.55*
Switching Costs
.17*
Trust
.24*
.41*
-.13**
Benefits
Opportunistic
Behavior
.43*
Relationship
Commitment
.47*
Product Usage
.83*
Voluntary
Partnership
* Significant at .01
** Significant at .05
Loyalty Steps (McKinsey & Company)
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Value of the customer
Advocate
Repurchase
Select
Use
Depth of relationship
Indifference Satisfaction
“I’m resignedI don’t have any
choice
“I choose to
buy”
Preference Loyalty
“I would gladly
repurchase”
“I buy repeatedly and
Encourage others to do so too”
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Customer Relationship Management
(CRM)
• Is a strategic approach that is concerned with
creating improved shareholder value through
the development of appropriate relationships
with key customers and customer segments.
• CRM unites the potential of relationship
marketing strategies and IT to create
profitable, long-term relationships with
customers and other key stakeholders
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Customer Relationship Management
(CRM)
• CRM provides enhanced opportunities to use
data and information to both understand
customers and co-create value with them.
This requires a cross-functional integration of
processes, people, operations, and marketing
capabilities that is enabled through
information, technology, and application.
Adrian Payne and Pennie Frow
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What Is CRM?
“Customer Relationship Management should us to contact
and treat customers better than anyone else -- establish,
strengthen, and convert relationships”
CRM entails the following:
• Customer-centric marketing and operations approach
• Technology-enabled, automated business processes
• Consistent brand experience across all touch points
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What Is CRM?
CRM entails the following:
• Real-time response to customer stimuli
• Every customer interaction begins where the last one left off
• Tight integration between marketing and operations
• Understanding customer-level profitability
• Having an overall vision and building the solution in stages
• Anticipatory as opposed to reactive
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CRM
versus
Traditional Marketing
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Traditional Marketing Vs. CRM
Traditional
“The purpose of
business is to create
and keep customers”
New
“The business of
business is to
generate value for
and from customers”
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Key Business Issues
• Where a company’s future value will come
from
• How much it will cost to generate it
• How company should allocate resources to
generate it most efficiently
• How company should measure progress to
make sure it’s on the right track
from: John E. Groman
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profitable now
unprofitable future
profitable now
profitable future
C unprofitable now D unprofitable now
unprofitable future
Unprofitable
profitable future
Profitable
Customers - Future
Profitable
B
A
Unprofitable
Customers - Current
Not All Customers Are Equal
ST
Butterflies
Types of Loyalty
• Good fit between company’s offerings and
HP
customers’ needs;
•High profit potential
Actions:
•Aim to achieve transactional satisfaction,
not attitudinal loyalty
Milk the accounts as long as they are active
Key challenge is to cease investing soon enough
Strangers
• Little fit between company’s offerings and
LP
customers’ needs;
•Lowest profit potential
Actions:
•Make no investments in these relationships
•Make profit on every transaction
LT
True Friends
• Good fit between company’s offerings and
customers’ needs;
•Highest profit potential
Actions:
•Communicate consistently, but not too often
•Build both attitudinal and behavioral loyalty
•Delight to nurture, defend, and retain them
Barnacles
• Limited fit between company’s offerings and
customers’ needs;
•Low profit potential
Actions:
•Measure the size and share of wallet; if low
focus on up and cross-selling
If size of wallet small, impose strict cost
controls
From Reinartz and Kumar 2002 Harvard Business Review
HP = high profit; LP= low profit; ST =short term; LT= long term
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Traditional (Conquest) Marketing vs. CRM
• Traditional
• intermediate function
between company and
customer
• goal is to create more
and more customers
• 4 P’s product; 7 P’s
service
• CRM
• relationship is the
center of all functions
of organization
• focus is on customer
retention
• 14C’s
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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The Evolution of Building Loyalty
Profitability
Sales
Strategic
Tactic
Push traffic,
no targeting,
discounts, little
measurement.
Still push,
discounts,
some
measurement.
“Price” driven,
segmented,
transaction
based.
Added value to
product, support
price, customized,
strengthen brand.
Knowledge,
Help support
VAR in
loyalty
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Exercise
• Develop a list of activities that Cabo San
Viejo illustrates each of the 14 Cs could do to
increase the customer experience
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Satisfaction and Loyalty Are Not the Same
Satisfaction is
one with
Loyalty
Satisfaction
Loyalty
1
2
Satisfaction
Satisfaction
Ultimate Loyalty
Loyalty
Loyalty
3
Satisfaction
4
S/L
Loyalty
Loyalty
Satisfaction
5
6
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Adapted from Oliver, 1999, p. 34
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Notes From Previous Figure
• Oliver (1999) suggests that the first five
models are not correct illustrations of the
relationship between loyalty and satisfaction;
• Notice how satisfaction can spiral or build
into loyalty and that once loyalty is achieved,
it is separated from satisfaction, so that
episodic dissatisfactions will not negatively
affect loyalty.
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Questions regarding Customer Satisfaction
Measurement
• Does your company measure customer
satisfaction?
• How often?
• How do you measure satisfaction?
• What do you do with the results?
• How would you interpret diagram on the
next slide
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90
80
70
60
50
40
30
20
10
0
Satisfaction 10
Satisfaction 1 - 7
Satisfaction 8 - 9
Satis 8 - 9
Satis1 - 7
Satis 8 - 9
Satis 10
Satis 1 - 7
Satis 10
Repurchase 1-7 Repurchase 8-9 Repurchase 10
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Why Satisfaction May Not Lead To
Customer Loyalty
• Some customers never return to an area
• Some customers shop for the best price
• Some customers like to stay at different luxury
hotels, thus they stay at different hotels when in
same city
• Lack of distribution
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Brands and CRM go Hand-in-Hand
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Brand
• An orange …. is an orange. Unless, of course, that
orange happens to be a Sunkist, a name eighty
percent of consumers know and trust.
• Russell L. Hanlin CEO Sunkist Growers
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
From: David A. Aaker Building Strong Brands; New York: The Free Press page 7-8
Brand Equity
• Brand equity is a set of assets (and liabilities) linked
to a brand’s name and symbol that adds to (or
subtracts from) the value provided by a product or
service to a firm and/or that firm’s customers. The
major asset categories are:
•
•
•
•
Brand name and awareness
Brand loyalty
Perceived quality
Brand associations
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Brands and Branding
• Branding is a strategic point of view, not a
select set of activities
• Critical to creating customer value
• Critical to creating and maintaining a
competitive advantage
• Are cultures that circulate in society as
conventional stories
• Is more than a product
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Breakfast
Brands
Big Mac
Salads
Hamburgers
Products
Ronald McDonald
Shakes
Birthday
Parties
Kids
Fresh
Promotions
Hot
Size
Playground
McDonald’s
Value
Good
Tasting
Portion Size
Consistent
HassleService
Free
Convenient
A Mental Network
Family
Friendly/Warm
Meals
Consistent
Fun
French Fries
Egg
McMuffin
Quality
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Dolls/Toys
Golden Arches
McDonald’s
Charities
Clean
Fast
Ronald McDonald
House
Social
Involvement
From: David A. Aaker Building Strong Brands; New York: The Free Press page 94
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Minority/Inner City
Programs
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From Duane E. Knapp: The Brand Mindset: McGraw-Hill: New York
The Four Authors
• The Firms
• Shape the brand through activities that “touch”
customers; e.g., 13 C’s of marketing all use to “tell
stories”
• Popular Culture
• Used as props in entertainment such as films
• Public relations manage perceptions
• Influencers
• Trade magazines, reviews (Zagat), opinions of friends
• Customers
• Consumption stories
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Brand Personality
Organizational
Associations
Symbols
Product
Country of
Origin
Scope
Attributes
Quality
Uses
Brand-Customer
Relationships
User Imagery
Self-Expressive
Benefits
Emotional
Benefits
The Brand
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Brands and Competitive Advantage
• Brand provides leverage with partners
• Brand cultures are “sticky”
• Cognitive misers
• Culture is shared by many people and expressed
in a variety of contexts
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The Brand as a Mental Box
• A brand such as Mr. Goodwrench is much like a “box” in
someone’s head.
• As information about GM service programs is received, a
person will file it away in the box labeled Mr. Goodwrench.
• After time passes, little in the box may be retrievable.
• The person knows, however, if it is heavy or light.
• He or she also knows in which room it is stored – the room
with the positive boxes or the one with negative boxes.
From: David A. Aaker Building Strong Brands; New York: The Free Press page 10
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The Brand as a Ship
• A brand can be likened to a ship in a fleet facing
an upcoming battle.
• The brand manager is the captain of the ship,
who must know where his or her ship is going
and keep it on course.
• The other brands in the firm, like other ships in
the fleet, need to be coordinated to achieve
maximum effectiveness.
From: David A. Aaker Building Strong Brands; New York: The Free Press page 10
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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The Brand as a Ship
• Competitors correspond to enemy ships;
• knowing their location, direction, and strength is
critical to achieving strategic and tactic success.
• The perceptions and motivations of customers
are like the winds: It is important to know their
direction, their strength, and possible changes.
From: David A. Aaker Building Strong Brands; New York: The Free Press page 10
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Ten Guidelines for Building
Strong Brands
1. Brand Identity
 Brand as a person; brand as organization;
brand as product; brand as symbol
2. Value Proposition
 Emotional and self-expressive as well as
functional; understand brand customer
relationship
3. Brand Position
 Easily communicated and believable
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Ten Guidelines for Building
Strong Brands
4. Execution
 Deliver the brand promise
5. Consistency over time
 Maintain symbols, imagery, and metaphors that
work
6. Brand System
 Make sure the brands in the portfolio are
consistent and synergistic
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Ten Guidelines for Building
Strong Brands
7. Brand Leverage
 Extend brands and develop co-branding
programs
8. Tracking Brand Equity
 Track over time, including awareness,
perceived quality, brand loyalty
9. Brand Responsibility
 Someone needs to ensure brand is being
properly managed
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Ten Guidelines for Building
Strong Brands
10. Invest in brands
 Continue investing in the brand
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Case study on Brands: Rosewood
Hotels
• Why is Rosewood considering a new brand
strategy?
• What are the pros and cons of moving from
individual brands to a corporate brand?
• Will the move to corporate branding
maximize lifetime value?
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Rosewood Spread Sheet
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http://harvardbusinessonline.com/flatmm/flashtools/cltv/
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Word of Mouth
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Word of Mouth
• The One Number Firms Should Be
Concerned About
• Critical in services because of variability and
heterogeneity – customers discount
advertising, PR, and the like
• WOM comes from friend, associate, family
member
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Word of Mouth - continues
• Questions to ask:
• How likely is it that you would recommend
_______ to a friend or colleague?
use a 0 to 10 scale
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Word of Mouth - continues
• Net Promoter: calculate
• % of people who respond with a 9 or 10 (promoters)
• % of people who respond with a 0 – 6 (detractors)
Net Promoter Score = Promoters – Detractors
(E-Bay, Amazon, USAA 75% - 80%
Median 400 firms in 28 industries was 16%)
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How to Create WOM
•
•
•
•
•
•
Encouraging communications
Giving people something to talk about
Creating communities and connecting people
Working with influential communities
Creating evangelist or advocate programs
Researching and listening to customer
feedback
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How to Create WOM
• Engaging in transparent conversation
• Co-creation and information sharing
• Blogs
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Blog
• Word of the year in 2004
• Defined by Merriam-Webster as “a web-site
that contains an online personal journal with
reflections, comments, and other hyperlinks.”
• Survey by the Pew Internet and American
Life Project revealed that 27 percent of adults
who go online in the United States read
blogs.
Janet Johnson, Vice President of Communications, Marqui,
Inc.
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Blog
• More than 28% of journalists now rely on
blogs for reporting and research, according to
a survey by EURO RSCG Magnet and
Columbia University, with 53% of surveyed
journalists revealing they gleaned story ideas
from blogs and 36% saying they used blogs
to locate sources
Janet Johnson, Vice President of Communications, Marqui,
Inc.
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What a blog should be used for
• Provide product or service information, talk
about your market, explore the vision of your
management or leadership team, provide
opportunity for customers to share their
stories
Janet Johnson, Vice President of Communications, Marqui,
Inc.
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Examples of Blogs
•
•
•
•
•
www.thelobby.com
http://www.blogs.marriott.com/
http://behospitable.com/
http://www.hamptonlandmarks.com/
http://www.homewoodstories.com/
Marketing Strategy and Interactive Marketing © Stowe Shoemaker, Ph.D February 17, 2008
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Lifetime Value of the Customer
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Life-Time Value
• Definition:
• The net profit you will receive from transactions
with a given customer during the time this
customer continues to buy from you
• In today’s dollars/Euro/Yen
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Life-Time Value - continued
• Life-time value of a customer increases as
defections decrease
• Life-time value needs to be calculated for
each market segment
• Should be used in marketing strategy
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Life-Time Value - continued
• ROI
• Example: invest $40,000 in a mailing of 100,000
piece promotion
•
•
•
•
•
2% response rate sell
2,000 items at $100 each with net profit of $50 each
Gross profit = 2,000*$50 = $100,000
Net profit = $60,000
ROI=60,000/40,000 = 1.5%
• Judges marketing effort on a one time investment
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
87
Assignment
• Complete information on next set of tables
and answer question, should property have a
loyalty program?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Control Group: No Loyalty Program: (complete this table)
Year 1
Customers
5,000
Retention Rate
NA
Spending Rate
Year 2
3,650
2,884
$148
$159
$165
45%
45%
TOTAL
REVENUE
Variable Costs %
Variable Costs $
GROSS PROFIT
Discount rate (15%)
D=(1+i)n
NPV Profit
Cumulative NPV
Profit
Lifetime Value
Year 3
88
Lifetime Value of Test Group: Enrolled in Loyalty Program
Year 1
Year 2
Year 3
Referral Rate
6%
8%
NA
Referred Customers
0
300
340
Retained Customers
0
3950
3570
Customers
5000
4250
Retention Rate
NA
Spending Rate
$162
$175
$182
45%
45%
45%
TOTAL REVENUE
Variable Cost %
Variable Cost $
Program Costs $12 PM
$60000
Referred Incentives $15
0
TOTAL COSTS
GROSS PROFIT
Discount rate
NVP
Cumulative NPV
Lifetime Value
89
90
Payback Comparison – complete table
Year 1
Year 2
Year 3
Control Group LTV
Test Group LTV
Difference
With 200,000
customers
Annual loyalty
program costs
ROI initial
investment $12PM
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
91
Club Med Case Study
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Questions
• In what areas has Club Med developed a
competitive advantage?
• How defensible are they?
• How serious a threat is the new competition?
• What is the expected value of a new
customer?
• What is the company’s culture and what is its
impact on the firm’s performance?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
93
Questions
• What impact on sales would an increase in
service quality have (i.e., what are the
“external” economics of quality)?
• What opportunity actually exists for Club
Med to increase service quality? What are the
relative costs of its options?
• What areas should Jacques Giraud be most
concerned about, areas that he should put on
his strategic agenda?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
94
Questions
• What are the nonfinancial measures of the
company’s performance, and what do you
conclude from them?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
95
Firms with Following Characteristics Should
Improve Customer Satisfaction, as will
Influence Profitability
1.
2.
3.
4.
5.
6.
7.
8.
High rate of customer repurchase
Heavy customer word of mouth
Large share of market needed
High level of customer expertise in judging quality
High level of perceived financial risk
High level of ego intensity
Low customer price-sensitivity
High degree of operating leverage
96
Price of Non-Conformance
• Model provides a basis for evaluating the
impact of a change of service quality on
customer satisfaction
• Illustrates the impact of a new customer’s
service experience on the rate of repurchase
and generation of new customers
97
Data to Illustrate Information
1.
2.
3.
4.
5.
60% or 200,000 GMs are new (p.8)
80% satisfaction (not given in case)
Of the satisfied GMs, 30% could be expected to become
repeat buyers of Club Med vacations. (On an overall basis
approximately 25% of all GMs become repeat purchasers.)
(p.8)
The repeat GMs could be expected to purchase four
additional Club Med vacations (p.8)
Contribution margin of extra guests is valued at 60% (p.8).
98
Data to Illustrate Information
6.
65% of Club Med’s new GMs are influenced to purchase
primarily from positive word of mouth (p.8); Assume that
all positive word of mouth is generated in the year the
vacation occurs, and its effect – the generation of new
GMs – takes place the following year; examine 1985 from
1986
New Questions Based on Previous
Two Slides
• What is financial impact of customer
satisfaction of 80%?
• What is financial impact is this increased to
90%?
• What is financial impact of positive word of
mouth?
99
100
How To Create Loyalty
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
101
Creating Loyalty
Exit
Process
Exit
Value
(Added
and
Recovery)
Communication
Exit
Static
Fluid
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
102
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
103
Value
• Seeks to create new value for customers and then share
the value so created between producer and
consumer.
• Value is created with customers, not for customers.
• Requires that a company design and align its
business processes, communications, technology
and people in support of the value individual
customers want.
• Types of Value
• Value Added
• Value Recovery
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
104
Creating Loyalty
Exit
Process
Exit
Value
(Added
and
Recovery)
Communication
Exit
Static
Fluid
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
105
Process
• Focuses on the processes and whatever else is
needed to advance the customer relationship.
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
GAPS Model of Service Quality
CUSTOMER
Expected Service
GAP 5
Perceived Service
Service
Delivery
COMPANY
GAP 1
GAP 4
GAP 3
External
Communications
to customers
Customer-driven service
designs and standards
GAP 2
Company perceptions of consumer
expectations
(from Zeithaml, A. Valerie and Mary Jo Bitner (1996). Services Marketing. New York: McGraw Hill p. 48.)
106
107
GAP Model of Service Quality

Performance = Expectation 
Performance < Expectation 
Performance > Expectation
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
108
Dimensions of Service Quality
• Reliability
• Assurance
• Tangible
• Empathy
• Responsiveness
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
109
Exercise
Spend 10 minutes designing a room
service script that uses each part of
the RATER System
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
110
Creating Loyalty
Exit
Process
Exit
Value
(Added
and
Recovery)
Communication
Exit
Static
Fluid
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111
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
112
Communication
•
•
•
•
•
•
•
Sales force
Outlets
Reservations
Direct Marketing
Electronic Commerce
Mobile Commerce
Employees
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
113
Information-Driven Marketing- The Complete Model
Marketing Strategy
Marketing Tactics
Awareness
Publicity
5 Degress of Customer Bonding
Identity
Relationship
Community
Relationship
Direct
General
Sales
Programs Marketing Advertising promotion
A dvocacy
Point-ofpurchase
InformationExchange
Data Processing
and Storage
The Information Core
-DatamotionInformationExchange
Applications of Data
New Product Life-time-Value Crystal Ball New Customer Partnership Information
Indcubator
Enhancer
Predictor
Attractor
Stimulator Accumulator
Information from the information core feeds back to the tactical level of the system, providing guidance for future activities
on new busienss opporetunities, partnering opportunities, routes for enhancing lifetime value, information acquisition,
anbd market predicting
114
Individual Rights re: Database
•
•
•
•
•
Access to their data
Correction/deletion
Object to processing
Automate decision
Consent to transfer data to others
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
115
Governing Laws
• European Convention on Human Rights
• Council of Europe Convention 108
{R85(20)-direct marketing}
• Data Protection Directive {95/46/EC}
• Telecommunications Directive {96/97/EC}
• E-Commerce Directive {00/31/EC}
• Privacy and Electronic Communications
Directive {02/58/EC}
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
116
Laws Regarding Databases
• UK:
• www.informationcommissioner.gov.uk
• 44 (0) 1625 545745
• E-mail: data@dataprotection.gov.uk
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117
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118
Laws Regarding Databases
• European Union:
• http://ec.europa.eu/justice_home/fsj/privacy/
E-mail: Markt-E4@cec.eu.int
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119
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120
• Directive 2002/58/EC of the European
Parliament and of the Council of 12 July
2002 concerning the processing of
personal data and the protection of
privacy in the electronic
communications sector (Directive on
privacy and electronic communications)
Official Journal L 201 , 31/07/2002 P.
0037 - 0047
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
121
Ways to Use Database
•
•
•
•
•
Identify your best customers
Develop new customers
Deliver a Message Consistent with Product Usage
Reinforce Consumer Purchase Decisions
Cross-Sell and Complementary-Sell Products
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
122
Ways to Use Database - continued
•
•
•
•
•
Improve Delivery of Sales Promotion
Refine the Marketing Process
Increase the Effectiveness of Distribution Channels
Maintain Brand Equity
Take Advantage of Stealth Communications
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
123
Ways to Use Database - continued
• Conduct Customer, Product, and Marketing
Research
• Develop Personal Profiles of Guests
• Create RFM Codes
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
124
Ways to Use Database - continued
• RFM Codes
•
•
•
•
•
Same procedure for each code
1. Put in _____ for each customer record
2. Sort database from highest to lowest
3. Divide into five exactly equal parts
4. Number the quintiles with 5 being the most
recent
• 5. Put the quintile number into each record
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
125
5
4
3
2
1
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
126
Example of RFM Table in Research
# of People
R
F
M
Test
Control
90
5
5
1
45
45
90
5
5
2
45
45
106
5
5
3
53
53
123
5
5
4
62
61
281
5
5
5
140
141
105
5
4
1
53
52
135
5
4
2
67
68
139
5
4
3
70
69
154
5
4
4
77
77
167
5
4
5
84
83
127
Best Practice for Communication
•
•
•
•
•
Start off slow
Show you are listening
Offer value in return
Not everyone wants dialogue
Do not misuse the trust created
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
128
Other Keys to Successful Communication
via E-Mail*
1.
Be selective as to who is added to your list or you will
create more work for yourself;
•
•
•
2.
Use double op-in
Make it easy for people to opt-out
Put privacy statement on website and follow it
Use HTML instead of text
•
•
Make sure it can be easily read without graphics appearing as some
graphics blocked and if read off-line graphics will not appear
Give customer choice as to how they would like to receive
information
* From Right Now Technologies
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
129
Marketing Strategy and Interactive Marketing © Stowe Shoemaker, Ph.D February 17, 2008
130
Marketing Strategy and Interactive Marketing © Stowe Shoemaker, Ph.D February 17, 2008
131
Marketing Strategy and Interactive Marketing © Stowe Shoemaker, Ph.D February 17, 2008
132
Other Keys to Successful Communication
via E-Mail*
3.
Make e-mails relevant and extremely valuable;
•
•
•
•
•
4.
50% e-mail now spam
From: represents your brand
Subject: represents timely and relevant proposition
Personalize
Use past buyer behavior information to target offers
Let customer choose how often they would like to hear
from you
•
•
See www.landsend.com for their policy
Do not send overnight so gets lost in morning clutter
* From Right Now Technologies
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
133
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134
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135
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136
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137
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138
Other Keys to Successful Communication
via E-Mail*
5.
Keep e-mail short and packed with value;
•
•
•
•
6.
Use bullets
Use lots of space
“come on, I am easy to read”
Print out and see what it looks like, as many recipients will do that
Make it distinctive and appear as if they cannot get
anywhere else
•
•
Subscribe to competitive lists to see what is being done
Develop own voice and distinctive style
* From Right Now Technologies
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
139
Other Keys to Successful Communication
via E-Mail*
7. Do Not Make e-mail visual circus;
•
•
•
•
Make focal point of e-mail obvious
Many people do not scroll
Design to be seen in preview pain
Print out and see what it looks like, as many recipients
will do that
8. Test Everything
•
•
Benchmark yourself
Split test
* From Right Now Technologies
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
140
Evaluation Metrics - continued
Basic Form of Pre-test Post-test with Control
01
02
03
04
TE
Pre-test Test Group
Post-test Test Group
Pre-test Control Group
Post-test Control Group
Treatment Effect
example:
visits 5.3
visits 6.8
visits 5.4
visits 5.6
Mailing
TE = (02 - 01) - (04 - 03)
TE = (6.8 - 5.3) - (5.6 - 5.4)
= (1.5 - 0.2)
= (1.3) increase in # of visits
Question: Is this good?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
141
Other Keys to Successful Communication
via E-Mail*
9. Multimedia e-mails;
• Know your audience
• Useful or just showing off?
• Do not assume audience wants multi media
* From Right Now Technologies
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Other Keys to Successful Communication
via E-Mail*
10. Types of responses;
•
•
•
•
•
Valid response
Hard response (e-mail no longer in existence or
address error)
Mail box full
Spam filters
Out of office replies
* From Right Now Technologies
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142
Other Keys to Successful Communication
via E-Mail*
10. Create and Think Customer Experience;
11. Make privacy part of brand promise
* From Right Now Technologies
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
143
144
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145
Creating Loyalty
Exit
Process
Exit
Value
(Added
and
Recovery)
Communication
Exit
Static
Fluid
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
146
The Four Components of the Process
Physical
Product
• Whatever the organization transfers to the
Customer that can be touched
• Must be Customer-Oriented (create value)
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
The Four Components of a Service
Process
Physical
Process
Product
•
•
•
•
Service
Product
Core performance purchased by the Customer
Includes all interactions with the Customer
“Plan Your Work”
Incorporate RATER system into each plan; e.g. in-room
dining
147
148
Plan Your Work
• Scripts for each service encounter
• Hostess:
• “We will be asking you throughout your visit how we can do
things better. Please be aware that our goal is to provide a
wonderful dining experience; if we fall short of that goal, please
do not hesitate to tell us.”
• Wait person:
• “We have great desserts here. They are made locally by a
woman named Cynthia. Cynthia has lived in area for ages and
follows a family recipe.”
149
Plan Your Work
• Scripts for each service encounter
• About Our Fish
• As you may know, one should not eat oysters in months that
have an R. Therefore, we will not be serving oysters tonight as
we only serve the freshest fish here. ”
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
The Four Components of a Service
People
Process
Service
Product
Service
Delivery
Physical
Product
• Refers to what happens when your Customer
interacts with employee
• “Work Your Plan”
• Example: What is said to the customer
150
151
Work Your Plan
• Goal is to incorporate some aspect of the
RATER system in each interaction
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
152
The Four Components of the Process
Service
Product
Service
Delivery
Physical
Product
Service Environment
• The physical backdrop that surrounds the service
• 3 Elements: ambient conditions; spatial layout; and
signs, symbols, & artifacts
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
153
More on the Service Environment
(Servicescape)
• Customers rely on tangible cues, or physical
evidence, to evaluate the service
• Idea of experience space
• How does this space make me feel?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
154
Symbols
• Symbols as visible, physical manifestations of
organizations and indicators of organizational life.
• are things that can be experienced with the senses and
used by organization members to make meaning
• noticed through sight, sound, touch, and smell
• experienced as real, and their impact has significant
organizational consequences.
• things such as organizational layout, organizational
landscape, or organizational dress are examples
http://iew3.technion.ac.il/Home/Users/anatr/symbol.html
155
Four Functions of Symbols in Organizational
Culture
1. Symbols provide a tangible expression of
this shared reality


enable us to take aim directly at the heart of
culture” because they represent and reveal that
which is tacitly known and yet unable to be
communicated by an organization’s members
Examples?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
156
Four Functions of Symbols in
Organizational Culture
2. Symbol as a trigger of internalized values
and norms; people often act out the roles in
which they are placed


Now put on your managerial hat and take off
your engineering hat. We need to make a
managerial decision (Timmons, 1991).
the facade of a restaurant evokes in customers
a particular pattern of emotions and behaviors
with respect to that restaurant.
157
Four Functions of Symbols in
Organizational Culture
•
People navigated their way through the
organization using dress. This navigation
included placing themselves within and
distinguishing between hierarchical levels,
distinguishing functional areas, and
interpreting relevant organizational events
by learning about and complying with
appropriate organizational dress codes.
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158
Four Functions of Symbols in
Organizational Culture
3. Symbol as a frame for conversations about
experience


Money functions as a symbol to allow
conversation about abstract notions such as
organizational identity, values, priorities, and
beliefs; e.g., budgets
design of the logo Coca-Cola in multiple
languages around the world maintains an
identical physical appearance
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
159
Four Functions of Symbols in Organizational Culture
4. Symbol as an integrator of organizational systems
of meaning
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160
Four Seasons Video
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
161
CUSTOMER
Expected Service
GAP 5
Perceived Service
Service Delivery
COMPANY
GAP 4
External
Communications
to customers
GAP 3
GAP 1
Customer-driven service designs and standards
GAP 2
Company perceptions of consumer expectations
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162
CUSTOMER
Expected Service
COMPANY
GAP 1
Company perceptions of consumer expectations
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
163
“A guest sees more in an hour that the host sees in a
year.”
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
164
Reasons for GAP # 1
• Inadequate marketing research
• Lack of upward communication
• Insufficient relationship focus
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
165
Ways to Close GAP # 1 first four ways
•
•
•
•
Transactional surveys
Market-wide surveys
Employee Field Reporting
Mystery shopping
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
166
Methods for Understanding
Customers - Transactional Surveys
• Occur at time of transaction or immediately
after
• Asks the following questions:
• Likes and dislikes
• Overall satisfaction and intent to return
• Importance versus performance
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
167
Methods for Understanding
Customers - Market-wide Study
• Includes customers and potential customers
• Investigates competitive positions
• perceptual maps
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
168
Examples of Questionnaire Wording to
Help Close Gap 1
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
169
Next please think for a moment about the reason for visiting a specific
legalized gambling establishment in Las Vegas. Please tell me how important
each reason is for you in your decision to visit one specific property over another.
Please use a 1 to 10 scale where a "1" means the reason is not at all important
and a "10" means the reason is very important in your decision to choose
one legalized gambling establishment over another. You may use any number
on this 1 to 10 scale.
Do you understand how this 1 to 10 scale works?
(IF NOT REPEAT SCALE)
[ASK QUESTIONS IN RANDOM ORDER
How important is....____________________... in your decision
to chose one place to visit over another?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
170
Now I am going to read you a list of features that may or may not describe some
of the casinos in the Las Vegas area. We'll use a 1 to 10 scale where 1 means it
"does not describe the casino at all" 10 means it "describes the casino perfectly"
If you have not been to the casino personally, please base your answers on what you
have heard, or what you believe to be true. The first feature is:
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
171
I am going to read you a list of features. For each feature, first tell me how
Important the feature is in your decision to actively participate in a hotel
frequent guest program? Then, please tell me how well that feature describes
the brand.
For the importance rating, please use a 1 to 9 scale where 1 means
“not at all important” in your decision to actively participate in a hotel frequent
guest program and 9 means “very important” in your decision.
In rating how well the feature describes each of the brands, please use a 1 to 9
scale where a 1 means the feature “does not describe that brands program at all”
and 9 means the feature “describes that brands program perfectly.”
Do you understand how these two scales work? The first feature is: ________
How important is this feature in your decision to actively participate in
a hotel frequent guest program? How does this feature describe BRAND 1?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
172
Methods for Understanding Customers –
Employee Field Reporting
•
•
Customer Feedback Form.
When you have feedback from any
customer – good and bad – please
complete and return form to
_______________
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
173
Methods for Understanding Customers –
Employee Field Reporting - continued
1.
2.
3.
4.
5.
6.
This is what the customer says he or she likes
This is what the customer says he or she does not
like
These are the reasons the customer gives for
discounting business or considering discontinuing
business with us
This is the evidence I have
These are the impressions I have
These are my suggestions for keeping/bringing
back the customer
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
174
Methods for Understanding
Customers - Mystery Shopping
• Employees act like customers
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
175
Ways to Close GAP # 1 second 3 ways
• Service reviews/ Customer advisory panels
• Employee Research
• Focus groups
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
176
Methods for Understanding Customers Advisory Panels/Service Reviews
• What is the most/least beneficial part of the
service
• Personnel questions
• How can we improve customer service
• Would you recommend us to a friend
• What other promotions have you seen
• etc.
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
177
Methods for Understanding Customers -
continued
1.
2.
3.
4.
Talk to at least 3 customers a week: one happy,
one unhappy, and one indifferent to learn what
each wants
Call or meet with at least three supervisors who
deal directly with customers each week to find out
how their week has gone
Give everyone in your organization some
experience with dealing with customers
Invite customers in for a thorough look at your
operation. Debrief them while they are there and
listen to what they have to say
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
178
Methods for Understanding Customers -
continued
5.
6.
7.
8.
9.
Get feedback from customers. Feedback includes both
formal and informal methods
Evaluate your last three products or services. How many
of them are from customers’ ideas? How do these
compare to new ideas not inspired by the customer?
Institute a specific system for learning and acting on
customers’ wants and needs. Reward people for passing
ideas along.
Reward managers, in part, on the basis of how in touch
they and their people are with customers
Share all customer insight and feedback with all employees
From: Joan Koob Cannie: Turning Customers into Gold. NY: American Management Association
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
179
Employee Research
• Ask employees the previous questions
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
180
Focus Groups
•
•
•
•
•
•
•
•
What Are They
Why Use
What They are Good For/Not Good For
Visual Stimuli in Focus Groups
Guidelines for Selecting Moderators
Focus Group Bill of Rights
Recruiting Focus Group Respondents
Moderator’s Guide
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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See article on buying and using
marketing research
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
182
CUSTOMER
COMPANY
Customer-driven service designs and standards
GAP 2
Company perceptions of consumer expectations
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Reasons for GAP # 2
• No customer-driven standards
• Inadequate service leadership
• Poor service design
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Reasons for GAP # 2
• Complete exercise starting on next page:
• Use following scale:
•
•
•
•
•
1 Very True
2 Somewhat True
3 Not applicable
4 Somewhat untrue
5 Very untrue
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Questions
1.
2.
3.
4.
5.
6.
We do not know what our customers require of us
______
Policies exist for the convenience of the organization, not
the customer ____
Everyone has a specialized job function and is not allowed
to intrude in others’ areas___
Customer contact people do not have the power to make
decisions ______
Service polices are arbitrary ______
We are more interested in making a profit than in building
a loyal customer base _______
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Questions continued
7.
8.
9.
Employees are not trained in people skills____
Management does not solve problems creatively _____
Employees do not seem to realize that customers want to
be treated well ____
10. The organization is focused on solving problems rather
than preventing them
11. We know how to handle complaints, but not how to serve
the customer
12. The organization does not formally value and reward
employees _____
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Transfer scores to here
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
____
____
____
____
____
____
____
____
____
____
____
____
TOTAL _______
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Interpretation
12-21 Your organization does not seem concerned with
customers
22-31 Your organization seems to regard customers as an after
thought
32-41 Your organization seems about average in thinking about
customers
42-51 Your organization seems concerned with customers, but
could improve its system with dealing with them
52-60 Your organization seems very customer friendly
From: Joan Koob Cannie: Turning Customers into Gold. NY:
American Management Association
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Service Blueprinting
• Visually displays the service by
simultaneously showing the processes of:
• Service delivery
• Roles of customers and employees
• Visible elements of the service
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Steps in Building a Service Blueprint
1. Identify the process to be blueprinted:
•
•
•
The basic business concept, or
A service within a family of services, or
A specific service component
2. Map the process from the customer’s point
of view
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Steps in Building a Service Blueprint,
cont.
3. Draw the line of interaction.
4. Draw the line of visibility.
5. Map the process from the customer contact
person’s point of view, distinguishing onstage from backstage actions.
6. Draw the line of internal interaction.
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Steps in Building a Service Blueprint,
cont.
7. Link customer and contact person activities
to needed support functions.
8. Add evidence of service at each customer
action step.
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SERVICE BLUEPRINT COMPONENTS
(Part of Service Product)
Customer Actions
Line of Interaction
“Onstage “ Contact
Employee Actions
Line of Visibility
“Backstage“ Contact
Employee Actions
Line of Internal Interaction
Support Processes
193
194
CUSTOMER
Service Delivery
COMPANY
GAP 3
Customer-driven service designs and standards
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195
Reasons for GAP 3
• Deficiencies in human resources
• Failure to match supply and demand
• Customers not fulfilling roles
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Ways to Provide Customer Oriented
Service Delivery
• from Zeithaml, Valerie A. and Mary Jo Bitner
(1996). Services Marketing. New York:
McGraw Hill: 312
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
196
197
Customeroriented
Service
Delivery
Develop
People to
Deliver
Service
Quality
Provide
Needed Support
Systems
ure
s
a
l
Me terna
In rvice
Se ality
Qu
Pr
Te om
am ote
wo
rk
e
lud s
Inc oyee
pl
Em the y’s
n
i
an
mp
Co ision
V
De
Se velo
ori rvice p
Int ente Pr ern d
oc
es al
se
s
Hire the
Right People
Empower
Employees
Retain the
Best
People
B
Pr e th
e
e
Em ferr
plo ed
ye
r
r
fo nd
ain l a
Tr nica tive
c
ch ra
te inte kills
S
Me
Treat
a
Employees as S R sur
tro ew e a
Customers
n
Pe ng S ard d
rfo er
rm vic
er e
s
for
e
t
e
mp est
o
C eB
th ople
Pe
Hire for Service
Competencies
and Service
Inclination
Provide
Supportive
Technology
and
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Equipment
198
Questions Mangers who Participate in Hiring
Should Ask Themselves
1.
2.
3.
4.
Do I have accurate job description for each position for which I must hire people?
Do I have an accurate person specification of the skills needed to do the job?
Am I using the most effective recruitment methods to attract the right applicants?
Do my interviews ask “what if” questions and allow the applicant to demonstrate his
or her service skills and attitudes?
5. Do I use all the available ways to assess applicants, such as reference checking,
employment agencies, and psychological evaluation?
6. Am I able to explain attractively the salary and benefits?
7. Do I have sound criteria upon which to base my selection?
8. Do I actively seize any opportunities to speak to prospective applicants in social or
business situations and encourage them to apply for jobs in my company or
organization?
9. Do I keep in touch with competitive salary and benefit offerings and make justified
recommendations for change when appropriate?
10. Do I assign the recruitment and selection process the right priority so that I am not
simply hiring warm bodies?
* from Lash, Linda M. (1989). The Complete Guide to Customer Service. New York: John Wiley: 48-49.
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200
EMPLOYEE BILL OF RIGHTS
What is expected of
them and how they
will be rewarded for
meeting those
expectations.
Quote From: Alex Brennan-Martin
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EMPLOYEE BILL OF RIGHTS
They want to know the
role they play in the
company’s success and
why what they are
doing is important
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EMPLOYEE BILL OF RIGHTS
They want management
to stop saying what it is
going to do and do it.
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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EMPLOYEE BILL OF RIGHTS
They want to be told
the truth and have
access to relevant
information.
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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EMPLOYEE BILL OF RIGHTS
They want to
opportunity to get
ahead.
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
205
CUSTOMER
COMPANY
Service Delivery
GAP 4
External
Communications
to customers
GAPS Model of Service Quality
(from Zeithaml, A. Valarie and Mary Jo Bitner (1996). Services Marketing. New York: McGraw Hill p. 48.)
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Reasons for GAP 4
• Ineffective management of customer
expectations
• Over-promising
• Inadequate horizontal communications
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Reset
customer
expectations
manage
horizontal
communications
Delivery > or =
Promises
Manage
service
promises
Improve
customer
education
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CUSTOMER
Expected Service
GAP 5
Perceived Service
COMPANY
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Reason for GAP 5
• Service has not managed GAPS 1-4
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Reliability
Interaction
Assurance
Quality
Tangibles
Empathy
Responsiveness
Reliability
Physical
Assurance
Environment
Tangibles
Quality
Empathy
Responsiveness
Reliability
Assurance
Tangibles
Empathy
Responsiveness
Situational
Factors
Service
Quality
Product
Quality
Customer
Satisfaction
Price
Outcome
Quality
Personal
Factors
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
211
Creating Loyalty
Exit
Process
Exit
Value
(Added
and
Recovery)
Communication
Exit
Static
Fluid
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Case Study: Measuring Quality at
Disneyland Paris
• See page 10 of the case
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213
Understanding Value
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214
Value Added: Goal
• Increase Rewards
• current transaction
• future transaction
• Reduced Costs
• current transaction
• future transaction
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
215
Understanding and quantifying value-to-customer is the foundation of effective
product-/service development.
Value-to-Customer
Features
Service
Quality
Product
Added Value
Price
Customer
Sacrifice
Value-toCustomer
From Stephan Butcher: Simon-Kutcher and Partners
216
Question to ID Benefits
• “Next, please think about what a restaurant,
in general, might offer you to develop
feelings of loyalty to that restaurant.” They
were asked to rate several statements from 1,
“Would have no effect on loyalty” to 10
“Would have great effect on loyalty.” They
could choose any number on this ten point
scale. The statements they were asked to rate
were:
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
217
Attributes
• The restaurant uses information from my prior visits to
customize services for me.
• I can make reservations at a time that suits me.
• I can request a specific table.
• The restaurant honors special requests for food or drinks.
• The staff recognizes me by name while I am in the
restaurant.
• The staff recognizes me by name when I arrive.
• If I am a member of their frequent diner program, I am
recognized as such during my visit.
• I would not have to pay up front to join their frequent diner
program.
• Employees communicate the attitude that your problems are
important to them.
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218
Attributes
• The restaurant provides me with occasional free food or
drinks.
• The restaurant has a children’s menu.
• The restaurant has a frequent diner program that allows
me to earn rewards towards complimentary meals at that
restaurant.
• The restaurant sends out newsletters that keeps me
abreast of happenings at the restaurant.
• If I am a member of their frequent diner program, I
receive communication informing me about
opportunities to earn additional discounts or points.
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
219
Attributes
• If I am a member of their frequent diner
program, I can earn/spend rewards at a variety of
different restaurants not owned by the same
company.
• I am able to make priority reservations.
• If I am a member of their frequent diner
program, there are a variety of locations owned
by the same company where I can earn/spend
rewards.
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220
Lessons Learned From Research in
Restaurants
• When asked to choose the top three benefits
respondents would like to receive as part of a
loyalty/frequency program, the benefits that received
more than 20.0% are:
•
•
•
•
•
Complimentary Meals (55.4%)
Coupons/ Discounts (45.5%)
Reward Certificates (37.5%)
Gift Cards (24.8%)
Call-ahead seating (for restaurants that do not accept
reservations) (20.9%)
• Complimentary Appetizers (20.3%)
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
221
Recognition
-0.310
0.178AD
-0.029Ad -0.207
Earn extra points
0.018D
0.272AD
0.435ABD -1.721
Reservations
-0.1413
0.009
0.023
0.0779
Free food and drinks
-0.010
-0.0363
0.175BD
-0.196
Special requests
-0.050C
0.195ACD -0.302
-0.031C
Problems are important
-1.321
0.191A
0.445ABC
0.168A
Can spend points anywhere 0.253CD
0.619ACD -1.209
-0.061C
Free program
-1.121
0.288AD
-0.0379A
Child's menu
-0.103
0.141ACD -0.051
0.143A
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
-0.26319
Cluster One. Points collectors
• Consists of 201 respondents, which represents 9.38% of the total
sample
• Several statements that were rated significantly higher by Cluster I
respondents exhibit this cluster’s focus on points collection, such
as:
• If I am a member of their frequent diner program, there are a variety of
locations owned by the same company where I can earn/ spend rewards
(7.93D).
• The restaurant has a frequent diner program that allows me to earn rewards
towards complimentary meals at that restaurant (7.77D).
• If I am a member of their frequent diner program, I receive communication
informing me about opportunities to earn additional discounts or rewards
(7.62D).
• If I am a member of their frequent diner program, I can earn/ spend
rewards at a variety of different restaurants not owned by the same
company (6.68CD).
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222
Cluster Two. Wants everything
• Cluster II consists of 631 respondents, which
represents 29.44% of the total sample. This group is
called “Wants Everything,” because they rate
significantly higher almost all of the components of
the model (see Table 3) used to determine the four
clusters, including:
•
•
•
•
•
•
•
Can spend points anywhere (.618ACD)
Free program (.288AD)
Earn extra points (.273AD)
Special requests (.195ACD)
Problems are important (.191B)
Recognition (.178AD)
Child’s menu (.141ACD)
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
223
224
Cluster Three. Tangible recognition
• Cluster III consists of 355 respondents, which represents 16.57% of the
total sample
•
Cluster III respondents exhibit this cluster’s focus on tangible benefits, such as:
• The restaurant has a frequent diner program that allows me to earn rewards
towards complimentary meals at that restaurant (9.29AD).
• If I am a member of their frequent diner program, I receive communication
informing me about opportunities to earn additional discounts or rewards
(8.85AD).
• The restaurant provides me with occasional complimentary food or drinks
(7.63AD).
• I can make reservations at a time that suits me (8.44AD)
• If I am a member of their frequent diner program, there are a variety of
locations owned by the same company where I can earn/ spend rewards
(8.32D).
• I would not have to pay up front to join their frequent diner program
(8.22AD)
• I am able to make priority reservations (8.19AD)
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
225
Cluster Four. Intangible recognition
• Cluster IV consists of 192 respondents, which
represents 8.96% of the total sample
• Cluster IV respondents exhibit this cluster’s focus
on intangible benefits, such as:
• Employees communicate the attitude that my problems
are important to them (8.56B).
• The restaurant honors special requests for food or drinks
(7.66B).
• The staff recognizes me by name while I am in the
restaurant (6.05B).
• The staff recognizes me by name when I arrive (5.97B).
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Problems are
important
Free program
226
IV
13.9%; N=192
Four Market Segments
I versus II
II 45.8%; N=631
Can spend
points
anywhere
Recognition
Reservations
III 25.7%; N=355
Special requests
Has a
children’s menu
Free food
and drinks
From restaurant study
May 2006
Earn extra points
I14.6%
I
N=201
Can spend227
points
anywhere
Earn extra points
II 45.8%; N=631
Free program
Four Market Segments
I versus III
III 25.7%; N=355
Recognition
Free food
and drinks
Problems are
important
Has a
children’s menu
Special requests
Reservations
From restaurant study
May 2006
I
14.6%
N=201
IV
I
13.9%; N=192
228
Earn extra points
Four Market Segments
II versus III
Can spend
points
anywhere
Has a
children’s menu
Free food
and drinks
Free program
II 45.8%; N=631
Recognition
Problems are
important
Special requests
III 25.7%; N=355
Reservations
I
From restaurant study
May 2006
14.6%
N=201
IV
I
13.9%; N=192
229
Perceived Value =
Perceived Benefits
Perceived Price
Perceived Price = total cost to buyer: purchase price+startup
(e.g., acquisition, transportation, etc.)+postpurchase (e.g., risk of poor performance)
Perceived Benefits = some combination of physical attributes,
service attributes, ease of use, etc.
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
230
Components of Perceived Value
• Cost: the sum of all costs required to acquire
and use the product or service
• Exchange: the perceived value of the brand
where item is sold
• Aesthetics: the value that customers place on
the properties or attractiveness of the product
• Relative Use: the way the product is used
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Components of Value -continued
•
•
•
•
•
•
•
•
Financial
Temporal
Functional
Emotional/Psychological
Experiential
Social
Trust
Identification with organization
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232
Factors that Impact Financial Value
• Perceived substitute effect
• buyers are more price sensitive the higher the product’s price
relative to prices of perceived substitutes
• Unique value effect
• buyers are less sensitive to a product’s price the more they value
any unique attributes that differentiate the offering from
competing products
• Switching cost effect
• the greater the product-specific investment that a buyer must
make to switch suppliers, the less price sensitive that buyer is
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233
Factors that Impact Financial Value
• Difficult comparison effect
• buyers are less price sensitive to the price of a known or reputable
supplier when they have difficulty comparing alternatives
• Price quality effect
• buyers are less sensitive to a product’s price to the extent that a
higher price signals better quality
• Expenditure effect
• buyers are more price sensitive when the expenditure is larger, either
in dollar terms or a a percentage of household income
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
234
Factors that Impact Financial Value
• End-benefit effect
• broken into two parts: derived demand (relationship between the
desired end benefit and buyers’ price sensitivity for something that
contributes to achieving that benefit) + share of total cost (cost of
the specific item to total cost of the product)
• Shared-cost effect
• impact of partial or complete reimbursement on price sensitivity
• Fairness effect
• based on price previously paid, prices of similar products (includes
location or situation), and if item is to avoid a loss versus achieve a
gain
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235
Value Added - continued
• How much is one hour of your customer’s
time worth?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
236
Temporal
• Time is money
• Advertisement
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
237
Functional
• Does the product or service do what is
suppose to do?
• Do we convey the functional value to the
consumer?
• RATER SYSTEM
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238
Dimensions of Service Quality
• Reliability
• Assurance
• Tangible
• Empathy
• Responsiveness
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239
Emotional/Psychological
• Need for recognition
• Staff have your best interest in mind
• Feeling of safety
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240
Experiential
• Guests active participants in the experience
versus passive observers
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
241
Social
• Similar to experiential
• Pricing of friends (e.g., Southwest promotes
friends fly free, free birthday entrees)
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
242
Experiential
• Guests active participants in the experience
versus passive observers
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
243
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
244
Manchester United
• People here work all week just to come here on Saturday.
They don't work all week for something else," says Howard.
"They work hard, so they can come here for 90 minutes, and
give everything they have."
Game day in Manchester is a tribal experience, a sea of red
jerseys flowing towards the old Trafford Stadium on a river
of beer. And, as Tim Howard is finding out, keeping the goal
for Manchester United is not a job for the faint of heart. He
is protecting the dreams of an entire football nation.
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
245
Social
• Similar to experiential
• Pricing of friends (e.g., Southwest promotes
friends fly free, free birthday entrees)
• Memories of getting engaged at a particular
restaurant
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
246
Social
• Consumers dine out to celebrate:
• Birthdays
• Their own (54%); Spouses (37%); their child (28%)
•
•
•
•
•
Mother’s Day (38%)
Father’s Day (22%)
Valentine’s Day (28%)
New Year’s Eve (13%)
Easter (13%)
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Trust:
• Integrity
• 34.1% claimed that “If I ask management or an
employee a question, I feel they will be truthful
with me.”
• Security
• 37.8% claimed that “I feel comfortable leaving
business papers and valuables in my room at this
hotel.”
248
Identification with Organization
(from article on theater goers)
1. Dedication to the customer
2. Customer support groups
•
•
•
HOGS
Seattle Mariners
Manchester United
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249
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
250
Identification with Organization
3. Opportunities for public displays of
association
•
•
Seattle Mariners
Manchester United
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251
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Section E: Customer Loyalty and Value
Identification with Organization
4. Active alignment with and support of social
causes
•
•
Ronald McDonald House
BA Change for the Good
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
252
253
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254
Identification with Organization
5. Provide opportunities for contact
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256
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257
Fox Theater
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258
Identification with Organization
1. Dedication to the customer
2. Customer support groups
3. Opportunities for public displays of
association
4. Active alignment with and support of social
causes
5. Provide opportunities for contact
6. Distinctive human resource policies
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
259
How To Create Great Value
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
260
Understanding Value: Critical Questions
• Need to ask following questions:
• What customers do business with us (directly or
indirectly)?
• What do they buy or use and what actions must
they take to do so?
• What are the best alternatives they perceive? If
they did not do business with this organization,
what would they likely do instead?
• What is the overall value of my offer to the
customer?
261
Understanding Value: Critical Questions • What is the value of a specific product feature and is the
willingness to pay for it higher than its cost?
• Which product attributes have the biggest potential to increase the
value?
• Where do I really increase value by increasing performance and
which improvements are simply “nice to have”?
• Where would a reduction of performance lead to the smallest loss
of value-to-customer?
262
Understanding the Experience
• Think about the check-in experience.
•
•
•
•
What is it that the customer is buying?
What makes it good?
What makes it bad?
What is his or her frame of reference? How to tie in
RATER system?
• Consider the questions on the next two slides; break into
groups and answer questions as they relate to check-in or
some other guest interaction
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
263
1. Understand the Resulting Experience
• An event (or sequences of events), physical and/or mental,
which happens in the customer’s life as a result of doing
what some business proposes
• The end-result consequence of this event for the customer
• In comparison to a customer’s alternative experience, either
superior, equal, or inferior
• The value for the customer of this experience
• Specific and measurable: one can objectively determine if the
customer experienced the events, consequences, and value
compared to alternatives
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
264
How To Use the Resulting Experience to Create
Value
• Understand and critique the customer’s experience
• Understand their objectives in each scene: what did they
hope or intent to accomplish, why or for what purpose
• Discover imperfections in the customer’s pursuit of these
objectives
• Analysis the imperfections in the customer’s pursuit of
these objectives
• Invent an improved scenario
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Theory of Understanding the Experience
• 1. Measure consumers’ schemas and scripts
• Definitions of schemas:
• “spatially and/or temporally organized knowledge structures in
which the parts are connected on the basis of contiguities that
have been experienced in space or time
• “general knowledge structures used for understanding”
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Theory of Understanding the Experience
• 1. Example of schemas:
• “If you have a schema for ice cream buying, this schema may
include much knowledge that comes from your buying in general
(e.g., what money is) and some that is applicable only to ice
cream buying (e.g., pictures of menu with different ice creams
available)
• Think of “room schema” then “kitchen schema” then “French
Provincial Kitchen” then “own kitchen”
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Theory of Understanding the Experience
• 1. Measure consumers’ schemas and scripts
• Definitions of scripts:
• Are a type of schema
• “predetermined, stereotyped sequence of actions that define a well-know
situation”
• “temporally organized sequences that specify the actions, actors, and props
most likely and least likely to occur during any given instantiation of an
event
• Includes: activities, actions, objects, and actors
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Ways To Determine Resulting Experience
1. Measure scripts and schemas
Write a list of actions describing what you do
when you check into a hotel. We are interested
in the common actions of a routine check in. Start
the list with arriving at the hotel and end it with
leaving after you leave the hotel. Include about
30 actions and put them in the order in which
they occur.
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Measuring Scripts - Exercise
Write list of script actions you went through in the
decision to take an executive education class
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Ways To Determine Resulting
Experience - continued
• 2. In-depth Interview
• can delve much deeper into a topic
• allow more candid discussion – especially
topics related to personal information
• eliminate negative group influences
• essential for situations where it might be
possible to put competitors in the same room
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Ways To Determine Resulting
Experience - continued
• 3. Anthropological research – the why as
well as the what
•
•
•
•
•
Natural environment
Examines emotions/feelings
Helps find “hidden” dimensions
Track behaviors
See external visible dimensions
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Ways To Determine Resulting
Experience - continued
• 3. Anthropological research – study by CampbellEwald Advertising
• Question: How are work and its reward acted out
every day?
•
•
•
•
Work hard …….fly first class
Work hard …….have a good dinner out
Work hard……..stay in a comfortable room
Work hard……..use your miles to buy your family a
vacation
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Ways To Determine Resulting
Experience - continued
3. Anthropological research – study by
Campbell-Ewald Advertising
• Question: How are work and its reward acted
out every day?
• Why? Because we worked hard! We deserve it!
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Ways To Determine Resulting
Experience - continued
3. Study by Campbell-Ewald Advertising
continued;
Two types of markets identified:
Willie Loman
Gordon Gecko
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Study by Campbell-Ewald
• Willie Loman
• At home on the road
• Master of the travel
universe
• Anonymous in
corporate setting
• Gordon Geck
• At home in the office
• Victim of the travel
experience
• Master of the corporate
setting
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Ways To Determine Resulting Experience
- continued
4. Traditional Surveys
• Just ask customers what they do in a
hotel room (e.g., Marriott and Bass
Hotels)
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How To Determine Resulting Experience continued
5.
Understand and critique the customer’s experience relative
to best alternative propositions
• Consider the most important experiences and
determine the competing alternatives that could
potentially deliver such experiences to the customer
• For competitors estimate the potential ability, cost, and
inclination of competitors to deliver such experiences
• Determine how fast competing alternatives could
match or surpass delivery of these experiences
• Examine the price differences competitors could
charge to get your customers to switch
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Index of Competitive Strength
The competitive advantages and disadvantages which are
shown in the matrix of competitive advantages can be
condensed into one single index, the index of competitive
strength. All relative performances of the product on the
individual factors are weighted with their importance and
summed up.
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Matrix of Competitive Advantages
Example: Casino
Level of Importance
high 10
Slot Club
Value of
Promotions
Friendly
Staff
Brand
Feel
Safe
Service
Package
5
Price
Good
Entertainment
Non
Smoking
low
1
5
Relative Performance
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high
280
How To Determine Resulting Experience continued
• Examine the price differences competitors
could charge to get your customers to switch
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Examples of Question Wording
• For 50% of the surveys: Next, I am going to read
you a list of possible promotions a hotel chain could
offer. For each promotion, please indicate how
likely you would be to stay at that chain instead of
the chain you normally stay at most often to take
advantage of the promotion. A 1 means “not at all
likely” and 9 means “very likely.” Assume the chains
are similar in terms of quality, consistency and price
but the chain offering a promotion is slightly less
convenient.
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Questions continued
• For 50% of the surveys: Next, I am going to read
you a list of possible promotions a hotel chain could
offer. For each promotion, please indicate how
many more dollars would you be willing to pay to
take advantage of this promotion. Assume the
chains are similar in terms of quality, consistency
and convenience but the chain offering a promotion
has a rate premium.
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How To Determine Resulting Experience continued
• 7. ZMET Approach to Consumer
Knowledge (Zaltman Metaphor Elicitation
Technique)
• This technique elicits metaphors from
consumers that represent their deep
meanings about a topic
• Basically, consumers find pictures that
express their thoughts and feelings
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How To Determine Resulting Experience continued
• 7. ZMET
• Steps:
• Pre-interview: participants told to select 8-10
pictures that represent their thoughts and
feelings about an issue or topic
• Story telling: participants tell stories about each
picture; this helps explain the affective and
cognitive meanings of the visual metaphor
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How To Determine Resulting Experience continued
• 7. ZMET
• Steps:
• Expand the frame: Participants asked: “what
things might come into the picture that might
help me explain your thoughts and feelings about
____
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How To Determine Resulting Experience continued
• 7. ZMET
• Steps:
• Sensory Images: Participants asked to describe
scent, sound, and touch that would express their
thoughts and feelings about ______
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How To Determine Resulting Experience continued
• 7. ZMET
• Steps:
• Vignette: Participants asked to create a short
movie or play that expresses their thoughts and
feelings about the topic. Participants told to
make a character in the story
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How To Determine Resulting Experience continued
• 7. ZMET
• Steps:
• Digital Imagery: create a summary collage of the
most meaningful pictures they brought to
interview; when done participant narrates a
detailed description of the image and its meaning
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After Understanding the Experience
Determine What Benefits to Offer
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Key Elements
• High Value
• meet expectations of the target group
• have certain exclusiveness “stand out in a crowd”
• high value relative to other benefits
• Perceived Value
• Customer must see feature has value
• Customer’s Point of View
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How To Determine Benefits to Offer
1. Internal brainstorming and research to
put together a list of potential benefits
(independent of cost and feasibility)
a. Whom to include? Why?
2. Interviews with members of the target
audience
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How To Determine Benefits to Offer
3. Small pre-study with potential
members to determine least interesting
and most interesting
4. Large study to identify the main value
drivers within the group of most
interesting
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How To Determine Benefits to Offer
5.
Laddering:
a.
Based on Belief that:
•
•
•
•
•
•
•
Consumers buy products to do something
Consumers’ product knowledge is organized in terms of what
products do -- e.g., their consequences
Product attributes per se have little relevance, it is the
consequences of the attributes; attributes can be concrete or
abstract
Consequences: both positive and negative
Consequences can be functional or psychosocial
Consequences involve outcomes-- called values
Values can be instrumental or terminal
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How To Determine Benefits to Offer
5. Laddering- continued
• Exercise:
• Assume that you are trying to decide in which hotel
loyalty program to be involved . What features to you
especially look for?
• Then Ask: Which two features are most important
to you in making your decision?
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5. Laddering- continued
• For each of two factors, do laddering:
Why is _____ important to you? Or, Why is
_____ important? Or, “what does _____
give you?”
• Continue this process for each factor
until consumer cannot go on
• Draw out the means-end chains
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An Example of a Laddering Interview
Researcher: “You said that a shoe’s lacing pattern is important to you in
deciding what brand to buy. Why is that?
Consumer:
“A staggered lacing pattern makes the shoe fit more snugly on
my foot.” (physical attribute and functional consequence)
Researcher: “Why is it important that the shoe fit more snugly on your foot?”
Consumer:
“Because it gives me better support.” (functional consequence)
Researcher: “Why is better support important to you?”
Consumer:
“So I can run without worrying about injuring my feet.”
(psychosocial consequence)
Researcher: “Why is it important for you not to worry while running?”
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Consumer: “So I can relax and enjoy the run.” (psychosocial consequence)
Researcher: “Why is it important that you can relax and enjoy your run?”
Consumer: “Because it gets rid of tension I have built up at work.”
(psychosocial consequence)
Researcher: “Why is it important for you to get rid of tension from work?”
Consumer: “So when I go back to work in the afternoon, I can perform
better.” (instrumental value – high performance)
Researcher: “Why is it important that you perform better?”
Consumer: “I feel better about myself.” (terminal value – self-esteem)
Researcher: “Why is it important that you feel better about yourself ?”
Consumer: “It just is!” (the end)
298
Interviews with Potential Members : Indepth Interviews
• Advantages
• Can acquire great information, as shown with
ZMET
• Disadvantages
• typically more expensive than groups, if hired
out if one looks at the cost per interview;
• time consuming;
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Methods of Value Measure
• Traditional Methods
• Ranking Scales
• Constant Sum Scales
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Traditional Methods
• Likert-type scales:
• “Below are a list of benefits that a luxury hotel
could offer to entice you to be loyal to that hotel.
For each benefit listed, please indicate the impact
that feature would have on your loyalty. Use a 1
to 7 scale where “1” means feature will have no
impact on your loyalty and “7” means the feature
will have a great impact on your loyalty. Use any
number 1 to 7”
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Problems with Traditional Methods
• Which scale range to use
• Everything may be rated important
• Does not measure “trade-offs”
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302
Ranking Methods
• Interviewees rate a limited number of
benefits
• Usually have respondent first split into two
groups - “those they really like” “those
indifferent towards”
• Respondents then rank each in terms of
impact on loyalty
• Note: Do not ask: which do you prefer
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Example of Rank Ordering
Below are a list of benefits that a luxury hotel
could offer to entice you to be loyal to that hotel.
Please rank order the benefits listed from 1 to X,
were “1” is the most important benefit that
will make you loyal to the hotel, “2” is
the 2nd most important benefits, and so forth.
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Problems with Ranking Methods
• Do not know relative degree of difference
between benefits; e.g., difference between 1
and 2 may be different than 2 and 3
• Benefits not of interest will still receive rank
orders; this may be done somewhat
arbitrarily.
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Example of Constant Sum
Below are a list of benefits that a luxury hotel
could offer to entice you to be loyal to that hotel.
Please divide 100 points between these benefits
based on how much a particular benefit would
increase your likelihood of being loyal to a hotel
that offered this benefit. The more points you
assign, the more important the benefit. Benefits of
no value may be left blank. You must use all 100
points.
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Constant Sum
• Interviewee is asked to divide 100 points
between a limited number of benefits
• Advantage: get ranking, plus you get relative
ratings
Benefit
Points
A
____
B
____
C
____
D
____
-----------------------------------------------------Total Points
100
307
Loyalty Circle
Exit
Process
Exit
Value
(Added
and
Recovery)
Communication
Exit
Fluid
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Value Recovery
• Complaint Management
Complaints Define What Customers Want
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From: A Complaint is a Gift
309
No Product or Service Failure
No Product or Service Failure
Customer does not say
anything
Customer dissatisfied and
speaks up
Celebration
Proactive Customer
Education/Research
Product or Service Failure
Product or Service Failure
Customer does not say
anything
Customer dissatisfied and
speaks up
Encourage Complaints
Service Recovery
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Levels of Complaint (from A Complaint is a Gift)
Complains to
company
Complains to other
people
Complains to third
party
Voicers
(37%)
Passives
(14%)
Irates
(21%)
Activists
(28%)
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Response to Value Recovery Depends
Upon:
• Ability to give customer’s opportunity to
present their point of view and express their
feelings (procedural fairness)
• Ability of firm to present a convincing
apology (inter-action fairness)
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312
From: A Complaint Is A Gift
Questions:
• Do your staff understand that when a service
failure occurs, your organization has a chance
to retain customer loyalty by satisfying the
customer’s needs?
• What does your organization do to get the
Passives to speak up?
• Does your organization have any cases of
Activist behavior?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
From: A Complaint Is A Gift
Questions:
• What are the worst names you call your complaining
customers?
• Under what circumstances do you consider your
customers’ complaints to be unreasonable? How do
you suppose your customers feel about these
complaints?
• Does your company have examples where service or
product breakdowns have lead to stronger ties with
the customer?
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From: A Complaint Is A Gift
Questions:
• What information do you need from your customers
to help them with their problems?
• How frequently do you check back with your
customers who have complained?
• How do you ensure that complaints are made
known through-out your organization? Do you keep
track of what happens to the information you learn
from customers’ complaints?
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315
Questions about Written Complaints
• What is your rate of response to complaint
letters? How quickly does your organization
respond? Do you use form letters?
• Under what circumstances do your
customers write complaint letters?
• Who responds to your customer complaint
letters?
From: A Complaint is a Gift
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Questions about Written Complaints
• Do your response letters specifically speak to
the customers’ needs?
• What do you do to exceed customer
expectations when they write complaint
letters?
From: A Complaint is a Gift
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How Well Are You Doing?
• 1 = Not using strategy at all
• 2 = Using the strategy but have had problems
implementing it
• 3 = Using the strategy but with no noticeable results
• 4 = Using the strategy and have noticed positive
results
• 5 = Using the strategy and judge it as a highly
effective tactic for maintaining ongoing
communication with customers
From: A Complaint is a Gift
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318
Strategies
• 1. Train staff to view complaints as a gift ___
• 2. Market the fact that you are looking for
complaints ____
• 3. Evaluate your internal complaint structure ___
• 4. Set up listening posts ___
• 5. Make customer comment forms available ___
• 6. Create staff comment forms to capture
customer complaints ___
From: A Complaint is a Gift
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319
Strategies
• 7. Let customers complain in private ___
• 8. Set up customer confidants ___
• 9. Do not be satisfied with the first response your
customers give you ___
• 10. Go after the ones that do not respond to your
customer surveys ___
• 11. Randomly ask for feedback ___
• 12. Ask for value and quality ratings ___
• 13. Hang out with your customers ___
From: A Complaint is a Gift
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320
Scores
•
•
•
•
•
•
•
1.
2.
3.
4.
5.
6.
7.
____
____
____
____
____
____
____
•
•
•
•
•
•
•
8. ____
9. ____
10. ____
11. ____
12. ____
13. ____
TOTAL ______
Your Total/65 = _________
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Why Customers Do Not Complain
• It wasn’t worthwhile. No one would listen to me
anyway.
• It would have cost more money to complain. I
would have had to call long distance.
• I didn’t know to whom I could complain.
• I needed all my original documents, and I’m not
sure where they are. I threw away the receipt
From: A Complaint is a Gift
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Why Customers Do Not Complain
• I had a problem last week; they would think I
am picky or a whiner?
• The last time I complained, nothing
happened.
• I’d rather just leave, never come back, and
not say anything. It’s easier that way.
• It wasn’t that bad.
From: A Complaint is a Gift
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
How Complaint Handlers Tell
Customers Not to Complain
•
•
•
•
•
•
Apologize and nothing more
Rejection
Promises that are not delivered
No response at all
Rude treatment
Being passed on to someone else
From: A Complaint is a Gift
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324
Strategies to Handle Complaints
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325
Formula for Written Complaints
• 1. Thank the customer; explain why you
appreciate the complaint and apologize
• 2. Let the customer know what you have
done
• 3. Admit the customer is right
• 4. Personalize your reply
From: A Complaint is a Gift
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
326
Formula for Written Complaints
• 5. Be simple, but specific
• 6. Exceed the customer’s expectations
• 7. Check customer satisfaction
From: A Complaint is a Gift
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327
Problem Impact Tree
Please indicate if you reported any problems during your visit and
how they were resolved.
No problems experienced . . . . . . . . . . . . . . . . . . . .1 SKIP X
Problems reported and were resolved in a friendly
effective manner . . . . . . . . . . . . . . . . . . . . . . 2
Experienced problems, but didn’t report to staff . … 3
Problems reported and were not resolved in a
friendly, effective manner. . . . . . . . . . . . . . . . . 4
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FIGURE II: TOTAL SAMPLE (n=4259, 100%)
Experienced Problems (n=683, 16%)
No Problems Experienced (n=3576, 84%)
Problems Not Reported (n=262, 38.4%)
Problems Reported (n=421, 61.6%)
Problems resolved in a friendly and
effective manner (n=295, 70.1%)
Problems not resolved in a
friendly effective manner
(n= 126, 29.9%)
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FIGURE III:
IMPACT ON LIKELIHOOD TO FLY AIRLINE AGAIN
Experienced Problems (n= 677)
Percent Rating Likelihood to Fly Again
a “5”= 26.6%
No Problems Experienced (n=3547)
Percent Rating Likelihood to Fly Again
a “5”=53.3%
Problems Not Reported (N=260)
Percent Rating Likelihood to Fly Again
a “5”= 18.1%
Problems Reported (n=417)
Percent Rating Likelihood to Fly Again
a “5”= 31.9%
Problems resolved in a friendly and
effective manner (n=293)
Percent Rating Likelihood to Fly Again
a “5”= 40.3%
Problems not resolved in a
friendly effective manner (n=124)
Percent Rating Likelihood to Fly
Again a “5”= 12.1%
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FIGURE IV:
IMPACT ON OVERALL EXPERIENCE
No Problems Experienced (n=3435)
Percent Rating Overall Experience a “5” = 38.0%
Problems Not Reported (N=253)
Percent Rating Overall Experience
a “5” = 9.9%
Problems resolved in a friendly and
effective manner (n=284)
Percent Rating Overall Experience
a “5” = 22.5%
Experienced Problems (n= 658)
Percent Rating Overall Experience
a “5” = 14.8%
Problems Reported (n=405)
Percent Rating Overall Experience
a “5” = 18.0%)
Problems not resolved in a
friendly effective manner (n=121)
Percent Rating Overall Experience
a “5” = 7.4%
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Case Study: Hilton HHonors
•
Questions for case
1.
Hotels are an unusual kind of product. Consumers buy a
branded experience, but the experience is delivered far
from corporate scrutiny, under various kinds of control - a
manager, a franchisee or a property operator. How can a
loyalty program help the property operator and brand
owner manage the relationship with the customers better?
How can it help with the overall service experience? How
can it help create loyalty?
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Case Study: Hilton HHonors
2.
3.
4.
5.
Can you quantify the value of the HHonors program to
Hilton? How does the value generated by the program
compare to the program's cost?
Now look at the program from the perspective of a
franchisee. If the franchisee had the choice of putting the
Hilton brand or one of the Starwood brands onto its
property, how would they assess the value of doing so?
What is the impact of the program to the brand Hilton?
What should Hilton do in response to Starwood?
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Case Study: Hilton HHonors
6.
Cheat Sheet to Help Answer the Above Questions:
•
•
•
•
•
•
•
•
7.
What is the occupancy rate?
What percent of all nights were my members of Hilton’s Program?
What percent of all member stays are due directly to the program?
Assume break-even occupancy of 68%. Without the program, what
would occupancy be? What does this mean?
What is the incremental room nights sold?
If contribution is 80%, how much less would they have earned in
contribution if they did not have the program?
Assume the average cost of advertising, selling, and other marketing costs
is $750 per room, is a frequency program cheaper?
If one thinks an 80% contribution is too high, at what point would the
contribution have to be to break even (hint: they would have come
anyway analysis)
How does program relate to the loyalty circle? (Complete table)
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Reasons for Frequency
Programs
Process
Value
Added
Value
Recovery
Communication
Aid in revenue management
Collaboration with partners
Encourage franchisee or management
contract relationships
Improving relationship with guest
Customizing a guest’s experience
Helping corporate travel managers
gain compliance
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Ways to Capture Customer
Information
Frequency Programs
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What Frequency Programs Cannot Do
• Fix an essential problem
• Show a profit in the short run
• Function as a promotion
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Mistakes to Avoid with Program
•
•
•
•
Treat frequency marketing like a promotion
Focus excessively on rewards
Short-change the communication plan
Underestimate the importance of internal
support for the program
• Pretend to care more than you do
From Dick Dunn
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338
What Frequency Programs Can Do
• Increase customer retention
• Increase share of customer
• Give you a means to listen to your customer
and respond with what they want
• Help with revenue management
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What Frequency Programs Can Do
• Collaborate with partners
• Work with franchisees
• Help travel managers gain compliance
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
340
Why Do Them
• Build a database which can be used to facilitate
precisely targeted marketing
• If run properly, creates long term, measurable,
conscious changes in desirable consumer behaviors
• Create on going communication with your
customers
• Can be highly cost effective compared with other
strategies
From: ICLP presentation Europe Direct 2003
What Makes A Frequency Program Work?
(Carlson Marketing)
•
•
•
•
•
•
•
•
Vital database
Targeted communication
Meaningful rewards
Simplicity
Attainability
Measurability
Manageability
Profitability
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
341
342
Customer Company
Relevant
Effort
Required
Worthwhile
Payout
Aspiration
Appeal
Reward
Variety
Results
Sustainability
Value
Sales
Channels
Strategic
Partners
343
Definitions
•
•
•
•
•
Share of Customer
Average # of New Customers Per Month
Purchase Frequency
Attrition Rate
Rewards/Recognition (see next slide)
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
344
Definitions - continued
•
•
•
•
Breakage
Client Base
New Customer Retention Rate
Client Retention Rate
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
345
Rewards
• Understood Message:
• Prove to me you are a good customer
• Focus:
• Redistributing offers so that your better
customer segments get the incremental discounts
• Essentially a discounting strategy
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
346
Rewards - continued
• When to Use
• Re-channel volume discounting more
productively
• Tract purchase behavior
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
347
Recognition
• Understood Message:
• You are a valued customer
• Focus:
• Tailor benefits to specific customers based on
their achieved or expected value
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
348
Recognition - continued
• When to Use
• Build or reinforce a high quality service image
• Add value to your customer relationship beyond
discounting
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
349
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
350
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
351
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
352
Recognition vs. Rewards
• Recognition
• “You are a valued customer”
• When to Use
• build or reinforce highquality service image
• add value beyond
discounting
• gain a competitive advantage
by offering something not
easily copied
• Rewards
• “Prove to me you are a good
customer”
• When to Use
• Re channel volume
discounting more
productively
• tract detailed customer
purchase behavior to build
transactional marketing
database
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
353
Recognition vs. Rewards
• Recognition
• Affinity Cards (cards
issued by clothing
stores)
• infuse more valueadded benefits
• provide monthly
communication vehicle
• keep track of customer
purchase data
• Rewards
• Partnership Rewards
• limit liability
• gain access to partner’s
database
• Co-Branded Cards
• overcome infrequent
purchase constraints
• provide monthly
communication vehicle
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
354
Soft vs. Hard Benefits
• Soft
• Hard
• intangible (thus, make
invisible to the
competition)
• value-added services,
the special treatment,
the recognition and
reward the customer is
looking for
• hard to copy
• tangible benefits which
are immediately
recognizable by all
members
• usually financial
benefits
• easy to copy
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
355
Necessity Goods versus Luxury
Goods
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
357
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
358
A Template for Program Design
Identify and qualify
the customer
Track other
Behavior
(e.g., F&B)
Track purchase
behavior based
on profit
Relevant
Benefits
Motivating
Rewards
Involving
Communication
Build scoring model based on profitable behavior
Database to support relationship marketing activity
From: ICLP presentation Europe Direct 2003
359
Process of Setting Up a Frequency
Program
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
360
# 2: Management Commitment
• Long-term business growth vs. short-term
costs
• Reallocation of resources
• Need a champion
• Need to get all areas of the company sold on
the idea
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
361
# 3: Set Objectives
•
•
•
•
To solve a business problem?
Capitalize on an opportunity?
Try to avoid being left behind?
Program objectives must support strategic
goals
• Objectives must be measurable
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
362
# 4: Design Program
• To be discussed in more detail later
• Focus on the customer
• Vision of relationship with the customer
• What do customers want
• Simple and understandable
• Consider the competition
• Point of difference
• Difficult to copy
• Create reluctance to defect
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
363
# 4: Design Program - continued
• Consider program structure
•
•
•
•
•
•
Promotional currency
Plateaus
Qualifications to play
Lifetime of rewards (e.g., expiration dates)
Fee or free?
Voluntary enrollment or automatic?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
364
# 4: Design Program - continued
• Provide an exit strategy
• Consider measures to evaluate
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
TYPICAL FLOW OF “POINTS” IN RESTAURANT BASED
LOYALTY PROGRAMS
Use Discount (usually 10% of total spent)
Buy Debit Card Gift
Certificate
365
Points Deducted
Points Deducted
Corporate Data Base
(either inside or outside)
Gift awarded and
printed on receipt
Unit A
Record of points
sent via POS system
Corporate gives 1 point per $1
to customer
Target communications
to members based on past
behavior (RFM)
e.g., reactivation of “lost”
members (no visits
90 days)
incentive rewards to
increase frequency
special surprise rewards
Diner Card
Gift Cerificate
Management uses card to recognize guest prior
to guest eating meal; guest may then get certain benefits
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
TYPICAL FLOW OF “POINTS” IN HOTEL BASED LOYALTY PROGRAMS
Property 2 or merchandiser exchanges vouchure
for cash (X-Y) per $1
Works with airline
to process miles for
Guest B
Property # 2
Gives Vouchure (X-Z) per $1 for
hotel stay or merchandise
Vouchure
Guest A
Exchange H points for vouchure
(X-Z) per $1
Give H Points
(X-Y) per $1
Property # 1
Corporate
Headquarters
Point /Miles
Bank
(H pts, A miles)
Sells A Miles
(X-Y) miles per $1)
Airline Miles
Sell A Miles
at X per $1
Tells corporate
Guest B earns miles
Sell H Points
(X points per $1)
Property # 3
Qualifies to earn (X-Z) miles
when stays in property
Guest B
and Frequency Marketing (c) Stowe Shoemaker, Ph.D
A = airline miles rewardsCustomer
; H=hotelLoyalty
point rewards
Z>Y
Miles Added to Guest B’s Account
Merchandise
366
367
# 5: Examine Logistics and Accounting
•
•
•
•
•
•
•
•
•
Enrollment
Rewards delivered
Customers questions
Start and end dates
Tracking performance
Reporting
Liability reporting
Renewals
Measurement
368
LIABILITY ANALYSIS
Depends Upon:
· Participation forecast
· Number of redemption levels
· Pay-outs
· Average customer spending
· Appeal of the rewards
· Churn behavior
· Bonus offer plan
· Market segment
Applying Liability:
Accrual Based Accounting:
Liability and expense for points is recognized in the month points are issued
using expected overall program redemption. The breakage assumption
is an agreed upon figure
Cash Flow Analysis
Expense is recognized in the months points are redeemed
Example:
Program member base
Average monthly spend
Total Spend
Points Issued ($1=10pts)
Point Value
Total Value of Points
Est. Redemption
Monthly liability
372,049
$131.79
$49,032,338
490323380
$0.003
$1,470,970
40%
$588,388
Need to do similar calculation for each segment
369
# 6: Issue of Partnerships
• Number of partners
• Types of partners
• Partner management
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
# 8: Decision to Test Program Prior
to Roll Out
• Strengths of pre-test
• Weaknesses of pre-test
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
370
371
Partnership Decisions
•
•
•
•
Scope of partnership
Reputation
Price of miles/kms
Number, quality, type and cost of
communications and database opportunities
offered
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
372
Partnership Decisions - continued
• Competitors who are also partners in other's
programs of partnership
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
373
# 7: Budget Calculations
•
•
•
•
•
Cost of administrative
Cost of communication
Point value (buy and sell)
Breakage
Payment to hotels (restaurants) for
redeemable stays
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
374
Next Series of Steps
• # 9: Finalize Program
• # 10: Train Employees
• # 11: Program Launch and Enrollment
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
375
Typical Time Frame and Costs Once
Program Launched
NEW MEMBER
ACTIVITIES
GENERAL MEMBER
ACTIVITIES
PRODUCTIVITY
ACTIVITIES
INVESTMENT
PAYBACK
INVESTMENT
Heaviest for first 6
months
Becomes increasingly trackable
after a “cycle”
After 12-18 months
Key Financial
Measures:
Volume of New
Members
Cost/New Member
Key Financial Measures:
Volume of Members
Cost/Member
Incremental Margin/ROI
Key Financial Measures:
Eliminated Members
Cost/Reactivation
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
376
GENERAL ACTIVITIES
Program
NEW MEMBER ACTIVITIES
1.
ENROLLMENT
2.
ACTIVATION
3.
QUALIFICATION
GENERAL MEMBER ACTIVITIES
4.
USAGE
5. STIMULATION
6.
SEGMENTATION
7.
TARGETING
PRODUCTIVITY
ACTIVITIES
8.
REACTIVATION
COMMUNICATIONS STRATEGY
DATABASE STRATEGY
REWARD STRATEGY
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
9.
PURGE
377
OVERVIEW OF NEW MEMBER
ACTIVITIES
Program
NEW MEMBER ACTIVITIES
1. ENROLLMENT
2. ACTIVATION
3. QUALIFICATION
“Get” and “Yes”
“Match” and “Train”
“Identify” and “Welcome”
Get New Member Name & Address
Get New Member Approval
Get New Member Profile Matched Up
Get New Member Behavior Trained
Identify Qualifying Members
Send Welcome Kit to Qualifiers
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
378
NEW MEMBERS
Program
1. ENROLLMENT
CURRENT RRI GUESTS
NON-RRI GUESTS
1.
CONVERSIO
N
2.
CAPTURE
REGULAR
3.
CAPTURE
GROWTH
4.
ATTRACTED
REGULAR
5.
ATTRACTED
GROWTH
6.
ACQUISITION
RRI guests who
are cu
RRI guests who are
not currently Redi
members – Existing
Inns
RRI guests who are not
currently Redi members
– New Inns
Non-RRI guests
attracted to RRI
program – Current
Market
Non-RRI guests
attracted to RRI
program – Market
Change
Non-RRI guests
targeted to RRI
program
Volume
Volume
Volume
ROI
Volume
Time
Volume
Time
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
379
NEW MEMBERS
Program
2. ACTIVATION
Behavior
Reinforced
Name/Address
Matched
Behavior
Tracked
Qualified
Profile
Match % and time to Match
Average time to Qualification
How well filter identifies best customers
Member
Suppressed
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
380
NEW MEMBERS
Program
3. QUALIFICATION
Behavior
Reinforced
Behavior
Tracked
Qualified
Member
Suppressed
Welcome
New Benefits
Time from Qualification
Cost of Welcome
Number of Qualifiers
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
381
Loyalty Program Overview
Program
NEW MEMBER ACTIVITIES
1.
ENROLLMENT
2.
ACTIVATION
3.
QUALIFICATION
GENERAL MEMBER ACTIVITIES
4.
USAGE
5. STIMULATION
6.
SEGMENTATION
7.
TARGETING
PRODUCTIVITY
ACTIVITIES
8.
REACTIVATION
COMMUNICATIONS STRATEGY
DATABASE STRATEGY
REWARD STRATEGY
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
9.
PURGE
382
GENERAL MEMBERS
Program
GENERAL MEMBER ACTIVITIES
4. USAGE
5. STIMULATION
6. SEGMENTATION
7. TARGETING
Regular Behavior
Whole base encouraged to do
increased behavior for specific
period
On basis of “Value” members
are given different communication
and/or special rewards
On basis of common
characteristics certain members are
given a special communication
and/or rewards
ROI
ROI
RETENTION
INCREMENTAL MARGIN
COST/MEMBER
ROI
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
383
Loyalty Program Overview
Activities
Program
NEW MEMBER ACTIVITIES
1.
ENROLLMENT
2.
ACTIVATION
3.
QUALIFICATION
GENERAL MEMBER ACTIVITIES
4.
USAGE
5. STIMULATION
6.
SEGMENTATION
7.
TARGETING
PRODUCTIVITY
ACTIVITIES
8.
REACTIVATION
COMMUNICATIONS STRATEGY
DATABASE STRATEGY
REWARD STRATEGY
Customer
Loyalty July
and 2001
Frequency Marketing
Customer Loyalty and Frequency
Marketing,
(c) Stowe Shoemaker,
Ph.D Ph.D.
© Stowe Shoemaker,
9.
PURGE
384
Loyalty Program Overview
Activities
Program
PRODUCTIVITY ACTIVITIES
8. REACTIVATION
9. PURGE
Efforts to revive an inactive member
The removal of a member from regular status
REACTIVATION RATE
ROI
COST SAVINGS
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
385
Next Series of Steps
•
•
•
•
# 12: Collect and Manage Data
# 13: Clean Data
# 14: Mining Data
# 15: Communication
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
386
Next Series of Steps
• # 16: Member Services
• # 17: Evaluation
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
387
Evaluation Metrics
“While we try to do all we can to objectively and accurately
measure the sales generated by a frequent diner program,
no analysis can provide absolute evidence that any program
produces a definitive amount of incremental sales.
Therefore, the best we can do is make some subjective
assumptions, temper them with common sense and good
business judgement, and reach a “comfort zone” regarding
what portion of sales were generated as a direct result of the
program versus guest patronage that would have occurred
anyway.” The Customer Connection
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
388
Evaluation Metrics
• Test and control group
• control group is non-members from the same
target group as members
• measure changes not absolute figures (e.g.,
increase in purchase volume was 10% higher
than non-members; satisfaction index increase
5% compared to 2% decrease for non members)
• Pretest-Post-test with no control group
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
389
Evaluation Metrics - continued
Basic Form of Pre-test Post-test with No Control
01
02
TE
Pre-test Test Group
Post-test Test Group
Treatment Effect
example:
visits 0 visits
visits 1,638 visits
Mailing
TE = (02 - 01)
TE = increase in 1,638 visits
Question: Is this good?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
390
Evaluation Metrics - continued
• Pre-test Post-test with control group
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
391
Evaluation Metrics - continued
Basic Form of Pre-test Post-test with Control (see 37e)
01
02
03
04
TE
Pre-test Test Group
Post-test Test Group
Pre-test Control Group
Post-test Control Group
Treatment Effect
example:
visits 5.3
visits 6.8
visits 5.4
visits 5.6
Mailing
TE = (02 - 01) - (04 - 03)
TE = (6.8 - 5.3) - (5.6 - 5.4)
= (1.5 - 0.2)
= (1.3) increase in # of visits
Question: Is this good?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
392
Evaluation Metrics - continued
• Life-time value
• Would Have Come Anyway Analysis
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
Example: “They Would Have
Come Anyway”
Card-swipe Frequent Diner Transactions:
Birthday Card Redemption without
Using Frequent Diner Card
TOTAL SALES (1997)
TOTAL COST OF PROGRAM
$1,329,150
65,258
$1,394,408
$ 61,000
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
393
394
% Come
Anyway
5%
10%
15%
20%
25%
50%
75%
90%
95%
100%
Sales
Anyway
Incremental
Amount
Less $61,000
$69,720
$1,263,688
(.05*1,394,408) (1,394,408 - 69,720 - 61,000)
$139,441
$209,161
$278,882
$348,602
$697,204
$1,045,806
$1,254,967
$1,324,688
$1,394,408
Note: can calculate for all possible percentages
$1,193,967
$1,124,247
$1,054,526
$984,806
$636,204
$287,602
$78,441
$8,720
$-61,000
395
Evaluation of Metrics - Rules
• Measure Relevant Factors For Members and
Non-Members; must be measured from very
beginning and same situation
• customer growth compared to industry at large
• cost per sale for members and non-members
• fluctuation of customers with and without club
membership
• satisfaction / retention scores
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
396
Evaluation of Metrics - Rules
• “No substitute for sitting across the table from a
selected cross section of the club members and asking
them how they really feel about your products, your
company, and of course your program” Mike
Ashton
• All activities (special mailings, complaints,
etc.) should be coded so one can measure
response rates
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
397
Evaluation of Metrics - Rules
• Examine cost savings: If you use club
members to research ideas normally do not
have to pay them
• Use test and control groups
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
398
Questions About Anything Discussed in
Class
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
399
Presentations for Hotelie Award
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
400
How to judge
• Team with highest average score wins
• Complete table on next page
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
401
not at all 1 2 3 4 5 6 7
#1
Creativity
Originality
Incorporates class
material
This group had fun
The customer will want
to belong to this program
It is feasible
TOTAL
#2
does extremely well
#3
#4
#5
#6