Since I started writing about customer loyalty, I've written about loyalty-related subjects as diverse as customer data integration, complaints, predictive churn modeling, customer community, and the fixation on customer acquisition. During the past several years, I was recently surprised to find, I've written almost one hundred articles (in addition to three books, with a fourth in development), and the subjects have ranged from customer life cycle, to win-back, customer-supplier perceptual misalignment, the importance of staff loyalty and productivity in leveraging customer loyalty, customer-focused teams, the lack of dimension of loyalty programs, and the uncertainties associated with Internet retailing. I've even examined, as a result of my speaking appearances and workshops at CRM conferences around the world, who should bear responsibility when CRM programs come up short, and, conversely, who should take credit when they succeed.
Much of what I've learned over the years about Sales, Marketing, and Customer Service has to do with the critical importance of customer data. It's how companies generate the right customer data, manage and share data the right way, and use it at the right time, and to best effect to optimize loyalty and profitability, that makes them successful, or not, on an individual customer basis. Culture, leadership, and systems will facilitate effective information
Bill Gates, often a prophet (one of his many titles), said in Business @ The Speed of Thought (1999):
The best way to put distance between you and the crowd is to do an outstanding job with information. How you gather, manage, and use information will determine whether you win or lose.
He might have added, had he really understood how to create and optimize customer loyalty, that what information, particularly customer-specific information, a company collects, and how they manage, share and apply customer data will determine how successful they can become.
One of my key sources for the uses of information gathered by customer clubs and loyalty programs, for example, is my friend and colleague, Brian Woolf (www.brianwoolf.com). Brian is President of the Retail Strategy Center, Inc., and a fountain of knowledge about how companies apply, and don't apply, data generated through these programs.
In a recent Peppers & Rogers newsletter, for example, Don Peppers quoted Brian in his article, "The Secrets of Successful Loyalty Programs":
"Loyalty program success has less to do with the value of points or discounts to a customer, and much more to do with a company's use of data mining to improve the customer experience. Top management hasn't figured out what to do with all the information gleaned. You have all this information sitting in a database somewhere and no one taking advantage of it.
You need to mine the information to create not only relationships but also an optimum (purchasing) experience. The best loyalty programs use the customer data to improve not only promotions, but also store layout, pricing, cleanliness, check-out speed, etc.
Firms that do this are able to double their profits. When these elements are not addressed, all you're doing is teaching the customer to seek out the lowest price."
Tesco, one of Europe's leading retail chains, is using its customer information for initiatives on a number on marketing and product development. In his book Loyalty Marketing: The Second Act, Brian described how Tesco leveraged customer data drawn from its loyalty program to move into offering banking and financial services:
"With information derived from its loyalty card and enriched by appended external demographic data, they can readily develop profiles of customers who would most likely be interested in basic banking services as well as an array of related options, ranging from car loans and pension savings programs, to insurance for all types of needs - car, home, travel and even pets. It costs Tesco significantly less than half of what it costs a bank to acquire a financial services customer. Without a doubt, having detailed customer information gives them a competitive edge."
A couple of years ago, Tesco parlayed its off-line customer data to also become the world's largest on-line grocery and sundries home delivery service. Additionally, Tesco uses its customer data to target and segment communications to the millions of its loyalty program members by almost infinite demographic, purchase, and lifestyle profiles. In his book, Brian notes that Tesco can create up to 150,000 variations of its promotion and reward statement mailings each quarter. These variations, as he says, "....are both apparent and subtle, ranging from the product offer (i.e., which customers receive which offers at what price) to the content of the letter and the way it is personalized."
Tesco is absolutely a company which knows how to leverage customer information. Their customer database contains not just demographic and lifestyle data, food spending in stores and on home delivery, but also specifics about their customers' interest in, and use of, a diverse range of non-food products and services. As Bill Gates' statement suggests, incisive and leveraged customer data has enabled Tesco to put distance between themselves and competitors, in both traditional and non-traditional retail markets.
The other side of this is the lack of usable, accurate, current customer data and/or poor data application prevalent in most companies. Low-quality customer information cost U.S. businesses roughly $600 billion in 2001, according to The Data Warehousing Institute. A study by Gartner found that 75 percent of leading companies are incapable of creating a unified view of the customer. Most organizational performance challenges stem from customer data: Lack of data availability, poor storage and management, and ineffective sharing and application, to cite just a few.
An understanding of the real value and impact of customer information, and a disciplined plan for sharing and using the data to make a company more customer-centric, is needed more than ever.
Most companies fit within a narrow spectrum that extends from mediocre to downright awful in how they approach the data need identification/development/storage/application process. In fact, it's a worldwide epidemic of inefficiency and ineffectiveness.
Poor customer data development and application negatively impacts customer loyalty efforts for companies of any size. According to a 2001 survey of 506 global CEOs by The Conference Board, these execs ranked customer loyalty and retention as their #1 management challenge. That challenge and need has driven some companies to invest as much as $30 million, or more, to install CRM systems and to invest even higher amounts in frequency marketing programs. But, we know there's widespread frustration among execs because 1) CRM systems aren't being used with nearly enough effectiveness to optimize customer loyalty and 2) frequency marketing programs tend to reward customers who are already loyal, and don't cover other customers very well.
There is little or no attempt, within either CRM systems or frequency marketing programs, to either generate information about what customers consider as having tangible or intangible value and then use that insight for leveraging loyalty behavior. That's a pivotal cause for the high failure rates of these systems and programs.
Even companies that properly introduce a CRM system often underutilize a its full information-gathering and application capabilities. "Businesses are often limiting the scope of information that they attempt to capture in their CRM environments," says Karl BÜttner, president and CEO of 170 Systems, Inc., a systems application provider. BÜttner says he sees many companies mistakenly focusing only on contact information, thereby passing up the opportunity to capture a broader, "360-degree", view of the customer.
Here are study findings, for instance, showing that very few UK businesses are collating or exploiting their customer data adequately, according to the results of research carried out by UK CRM consultancy firm, Detica.
The research report, Converting Customer Data Into Effective Decisions, shows that only 13% of companies can be categorized as leaders when it comes to collating customer data and subsequently using it to improve customer relationships. Another 32% were classed as the 'followers', having good data in certain areas but only using it to support a limited number of business functions. Another 15% of companies were classed as 'under-achievers', having some good customer data but making very little use of it; and the remaining 40% were categorized as 'strugglers', having very little good data and limited ability to exploit what they do have.
Colin Sheppard, strategic business development director at Detica said, "The research highlights the challenges businesses face in developing a good understanding of their customers, and in using the resulting insights effectively across the enterprise." Sheppard added, "Our research shows significant differences across different markets. In particular, telecommunications and utility companies have been shown to be lagging well behind those in the financial services and travel, transport and leisure sectors."
When it comes to the types of data being used, most companies are good at capturing the basics, such as contact and billing details, but few use additional descriptive information such as demographic or lifestyle data. When asked if their business had a good single view of the customer, no industry sector performed well. Just 17% of travel, transport and leisure companies said they did, compared to 27% of utilities, with telecommunications (55%) and retail banking (60%) performing the best.
According to Sheppard, creating a single view of the customer is a key business requirement which very few companies have truly achieved, mirroring the findings of Gartner's research. This problem hampers the effectiveness of marketing, sales and customer service operations alike. And when asked how their customer data is used, companies in all sectors were strong in using it for acquiring new customers (if fact, many cited this as a reason for developing a database in the first place). Yet few are using it to target cross-selling, retention and win-back campaigns or to reinforce relationships with customers.
The underlying reason study findings like this keep surfacing is that companies, in the main, do not identify what customers want. In addition, these companies do not become customer-centric, using their learning to build stronger relationships with customers, in spite of all the CRM system and loyalty program investment we've witnessed.
A good analogy, or model, for CRM and loyalty program effectiveness or ineffectiveness may be what can be termed the 'car-fuel relationship.' A car, no matter how attractive, powerful, and technically sophisticated, can't go anywhere without fuel.
Not only that, to reach a desired destination, the car must have the right fuel for its engine, and in the right quantity. For customers, the car is CRM, and its key data-related systems components (data gathering, integration, warehousing, mining and application).
The destination is optimized customer lifetime value and profitability. The fuel is the proper octane and amount of customer data.
Leading-edge companies are focusing on customer lifetime value as a destination. They are collecting the right data and using the right skills, processes, tools and customer data management technologies to make sure that key customer insights are available wherever they are needed, in all parts of the enterprise. Jeremy Braune, Head of Customer Experience at Detica, has been quoted as saying: "...organizations need to adopt a more structured and rigorous approach to development, based on a real understanding of what their customers actually want from them. The bottom line must always be to start with the basics of what is most important to the customer and build from there." I completely agree. It's (almost) all about the data.
Michael Lowenstein is managing Director of Customer Retention Associates, a customer and staff loyalty program development, research and consulting firm located in Collingswood, N.J. He has three decades of experience in customer and staff loyalty research and has written several books, including Customer Retention: Keeping Your Best Customers, The Customer Loyalty Pyramid and Customer Win-back: How To Recapture Lost Customers - And Keep Them Loyal.