Chapter 5 – The Customer Loyalty Audit

In the previous chapter we talked about getting your house in order.  Now we’re going to review what you need to do to surround yourself with the right information to make informed decisions about the best tactical approach to loyalty.

Stop.  I know what you’re about to do.  You’re going to delegate this.  Forget about it.  The best leaders open their eyes to the real situation in their company.  They accept the good, the bad and the ugly.  They also accept the fact that some things can only be fixed by top management.  If you don’t get involved, this will never get off the ground.  You can’t send someone else to be your eyes.  Lead this process yourself.  Use your eyes. 

The Customer Loyalty Audit (or CLA) is a comprehensive review of your situation with an eye toward determining your options.  It also helps identify inconsistencies, inefficiencies and potential obstacles that should be corrected and overcome as you move forward with your loyalty efforts.  The CLA (much like any other review process) cannot answer your questions or fix your problems.  You must answer your questions.  You must fix your problems.  The CLA provides a framework for organizing information and for identifying tasks. 

The CLA is organized into five major sections:

1.      The Customer

2.      The Competition

3.      The Communication

4.      The Operation

5.      The Technology

Each section of the CLA outlines basic questions and provides commentary and guidance for helping you weave your way through each section in your own organization.

Think about the process of going through the CLA like the process of taking a test.  The SAT.  The GMAT.  You get the idea.  The key is this: don’t spend too much time getting hung up on one question.  Come back to it.  The intent of the CLA is to get through the process in a matter of four to ten weeks.  If you spend too much time trying to get perfect answers and perfect information you’ll never make progress.  Move swiftly.  Use information, insight, intuition and common sense.  Chances are that’s what got you to where you are today.  Trust it.

Here’s how to work with the CLA process.  Make lists of all the potential answers to the questions in each section.  There are typically no right and wrong answers.  These are not black and white questions.  Each of the answers addresses a portion of the question.  Make your own list of potential answers and gather lists by interviewing others in your organization.  Consolidate the lists and highlight the answers that may be addressable in a loyalty program.

For instance, “convenience” will certainly appear under the question, “Why do customers not give us all their business?”  We can’t do much about convenience within the scope of loyalty.  Don’t get me wrong, we may be able to identify new product channels and new services that address convenience as a result of going through the CLA.  That’s an important byproduct of the CLA.  We may choose to implement a more convenient channel for our product or service as a result of this review.  But it’s not immediately addressable with a loyalty program.

However, suppose we believe customers see our brand and our competition at parity.  Customers make the choice based on whether it’s easier to turn into one parking lot or the other.  If we provide a reason for customers to think twice we may get more of their business.  This answer falls into the category of “addressable in a loyalty program.”

The Customer

1.                What do we know about sales, retention and share on a customer level?

2.                Why do customers choose our brand?

3.                Why do customers stay with our brand?

4.                Why do customers defect from our brand?

5.                Why don’t customers give us all of their business?

6.                What consideration process do customers go through when choosing our brand?

Many of the initial answers to these questions are similar or exactly the same across different companies and industries.  I’m sure you can identify them instantly.  Quality, value, price, service, selection, convenience.  Ok.  I’ve explained at least 80% of customer motivation with respect to selecting, staying, defecting and consolidating share of customer.  But let’s look beyond these obvious explanations.  Remember that loyalty tactics are the tiebreakers that motivate customers to change behavior in small increments.  We’re not looking for massive shifts in behavior.  Don’t get me wrong, we’d love massive shifts but they’re just not realistic.  We must focus on small steps.

What Do We Know About Sales, Retention And Share On A Customer Level?

How much do customers buy from us in a given week, month, period, quarter, or year?  Typically you have some basic segment descriptions for customers (light users, medium users, heavy users).  If you’re more advanced than that, great.  If not, that’s fine.  Quite frankly, sometimes customer segmentation gets so complex it can’t be used for anything anyway.

What do we know about retention rates?  How long do we keep an average customer?  Do we know that on a segment by segment basis?  What do we know about share of customer?  In other words, what percentage of a given customer’s business do we get?

These are important metrics to start with.  They need not be perfect answers.  You may have bits and pieces from database analysis or research that you do.  You may need to do a little more work to get better answers.  Perhaps some additional research.  But like most steps in the CLA, don’t get too caught up in this one.  We’re not looking for absolute answers.  We’re looking for enough insight to allow us to formulate opinions and hypotheses.

Why Do Customers Choose Our Brand?

Think about habit.  Some customers get into a habit about the way they buy goods and services.  You must give them a reason to think enough about the decision to break the habit.  Habit comes into play in many categories.

A brand choice is often a low involvement decision.  Customers don’t want to agonize over the choice.  However, customers may be easily influenced if they’ve been given a reason to think about it.  Sometimes it’s a simple reason.  Think about Blockbuster Rewards.  It’s a simple reason to pick one video rental store over another – especially when they’re right across the street from one another.

Why Do Customers Stay With Our Brand?

Customers often stay with our brand because of habit.  In some cases it’s more difficult to defect than stay, so customers stay.  Think about where your brand fits.

You may not find compelling reasons other than quality, value, price, service, selection and convenience.  It’s often brand failures that influence customer defection.  Sometimes it’s well-deployed loyalty tactics that give your brand a second chance to survive a brand failure.  Customers might give you a second chance.  Remember that loyal customers are more likely to complain than quietly defect.

You may have some unique heritage, tradition or legacy in your category.  You might have one thing that you do that your competition doesn’t.  Features you identify that help influence customer defection may factor into a loyalty program.  For instance, Advance Auto Parts is an automotive parts retailer in the United States.  Advance Auto Parts provides a service that some of their competitors don’t.  They install new car batteries free.  Battery installation is a dirty and potentially dangerous job.  Their sales associates can do the job quickly and safely.  This feature isn’t expensive for Advance Auto Parts, but it’s an extra benefit that gets customers more connected with sales associates.  This connection is one of the reasons customers stay with the Advance Auto Parts brand.

Why Do Customers Defect From Our Brand?

Very often it’s brand failures.  If we’re able to develop a connection with our customers, we will get some second chances to correct brand failures.

Another reason customers defect is because it’s easy.  If there’s no reason to think much about your brand, it’s easy to walk out the door or cancel service and never come back.  Sometimes a loyalty program is the hook that makes customers think twice about defection. 

Why Don’t Customers Give Us All Of Their Business?

Convenience often comes into play here.  Customers who give you some but not all of their business often represent your biggest opportunities for growth.  I get a little tired of hearing about how much more expensive it is to acquire a new customer than it is to retain an existing one.  Not because I don’t believe it or it’s not important, but because it’s an isolated thought.  In the grand scheme of things, companies must grow.  You can’t retain your way into growth, just like you can’t save your way into profitability.  Companies always need to acquire new customers, develop existing ones, and keep the best (those that can’t possibly spend any more with your brand).

Existing customers represent an opportunity because they clearly have a relationship with your brand.  It’s just not as big as it could be.  They buy in your category.  They don’t have a fundamental problem with your product or service.  They’re giving you some of their business.  They just need a reason to give you more.

Barnes & Noble launched their Readers’ Advantage program to get a greater share of their customers’ business.  For avid book buyers who spend a lot in the category there is no reason for them to consolidate with one brand.  They need a tiebreaker that makes them do it.  For example, by joining Readers’ Advantage customers obtain a reason.  A reason to steer clear of a Borders store in favor of the Barnes & Noble store that’s down the street.

What Consideration Process Do Customers Go Through When Choosing Our Brand?

After going through the five questions that preceded this one you’re likely to get a lot of redundant information.  But I keep this question in the CLA process because it may occasionally shake loose something that wasn’t thought of before.  For instance Wendy’s (a major player in the quick service restaurant business) is open until 1:00 AM in some markets while their competitors are not.  It’s a unique segment of their customer base that takes advantage of the late night service.  There may be some ideas generated about value-added benefits tied to late night service that help strengthen the relationship between Wendy’s and its customers.  Think about it.  Free chili with any order of at least $3.00 for members of Wendy’s Rewards (a fictitious program).  Who can match it?

The Competition

Here we examine our competition.  We review advantages and disadvantages and we analyze what our competitors are doing to build loyalty.

1.                Who are our principle competitors?

2.                What loyalty tactics does each competitor apply?

3.                What are our advantages versus each competitor?

4.                What are our disadvantages versus each competitor?

Who Are Our Principle Competitors?

List all the potential choices that a customer has.  Consider each alternative to your product or service.  Sometimes the choices are obvious.  For instance, in the wireless telecommunications business the choices are limited in each market.  Customers may have a handful to choose from.  However, if you’re a book retailer, the competition comes in many forms.  Supermarkets sell books.  Discount retailers sell books.  Drug stores sell books.  Consumers can buy books at the mall or they can go to stand-alone bookstores.  They can also buy on-line. 

What Loyalty Tactics Does Each Competitor Apply?

During your first review of this question you’ll identify all the obvious things.  Traditional loyalty programs that some of your competitors operate.  Once you’ve done that, look a little bit more carefully.  Loyalty tactics come in a variety of shapes and sizes.

For instance, most banks have a loyalty tactic in place that you might not think of.  Internet banking.  Once you’ve set up all your payees, your recurring payments and the various other options, you’re not inclined to switch banks and go through all that work again.  It’s a built in loyalty tactic.  You might not think about it as a loyalty tactic, but it’s another hook that keeps customers with a brand.

What Are Our Advantages Versus Each Competitor?

Be honest.  No company is perfect.  But you may have advantages that can be leveraged in some way as loyalty tactics.  I used the Advance Auto Parts example earlier.  They have an advantage over some of their competitors.

What Are Our Disadvantages Versus Each Competitor?

Now put yourself into the shoes of your competition.  What they have as advantages are your disadvantages.

The Communication

In this section of the CLA we’re trying to get a handle on all the different ways we talk to customers.  How do we speak?  How do we listen?  We’re also looking for inconsistencies that should be corrected.  Since we’re planning a new marketing effort to cultivate customer loyalty it’s the perfect time to ensure all our other efforts are as consistent as possible.  We’re also looking for inefficiencies.  There’s waste in every company.  Including yours.  Let’s clean things up while we’re working on programs to build customer relationships. 

1.      What communication tactics currently exist to facilitate customer interaction?

2.      Which communication tactics are redundant?

3.      Which communication tactics are inconsistent?

4.      Which communication tactics are inefficient?

What Communication Tactics Currently Exist To Facilitate Customer Interaction?

This is no small task.  It’s helpful to make lists of the various tactics and gather samples at the same time.  Once you have the various elements listed, categorized and organized, arrange them on a wall in a room that you can use on an ongoing basis as you go through the CLA process.  This room becomes your CLA war room.  When you set foot in this room you submerge yourself in the CLA and your brand.  You now know how the customer feels.

Look at the following categories:

·        Advertising.  All media.  Broadcast, print, outdoor, and online.  List the typical media selections you make for each.

·        Product packaging.

·        Brochures and other collateral.  List the various ways pieces are typically used.

·        Your website.  Get a site map and, at a minimum, the top page of each section of your site.

·        Signage, promotional banners.  This depends on the company.  Retailers often deploy in-store signs and banners.  Consumer packaged goods companies often deploy special displays with signs in retail locations.  Sprint has signs in Radio Shack stores and other retailers.  This category doesn’t apply to every company, but I include it just to make sure we don’t miss something.

·        Direct mail.  Include the typical list selection (if it’s list driven) or database selection criteria (if it’s from your own database).  Also, include details on the results various campaigns have produced.  Not every company has good documentation on results.  Ideally you get to the point of calculating return on investment (ROI).  But, that’s an ideal world.  Include whatever you have, no matter how subjective it may be.

·        Call center contacts.  List the types of calls you get (inbound) and the types of calls you make (outbound).  Include typical scripts and statistics on the number of each type of call you make or receive in a week, month, quarter or year.

·        White mail.  Identify the types of white mail do you receive from customers and how you respond.

·        E-mail.  Inbound and outbound.  List the kind of e-mails you receive from customers and the typical responses you generate.  List the kind of e-mail campaigns you initiate.  Include the typical list selection (if it’s list driven) or database selection criteria (if it’s from your own database of e-mail addresses).

Which Communication Tactics Are Redundant?

One of the byproducts of the CLA is the identification of redundant tactics.  Since we’re going through our customer touch points it makes sense to look carefully for redundancy.  Also, the CLA makes us look carefully at the messages we’re conveying to our customers.  Cultivating loyalty and building customer relationships requires smart marketing.  If we do things that appear redundant, customers feel we don’t have our act together and they’re less likely to demonstrate loyalty to our brand.

Which Communication Tactics Are Inconsistent?

We’re eliminating redundancy so let’s look for inconsistency as well.  Once you have all your communication components organized in the CLA war room, it’s the perfect opportunity to see how consistently your message comes across through the eyes of the customer.  If we’re inconsistent it confuses the customer about what we really stand for as a brand. 

Which Communication Tactics Are Inefficient?

Every company has waste.  If you’re objective about the CLA process, you’ll see some tactics in the CLA war room that can be improved or eliminated.

The Operation

In this section we review our sales channels, service and support functions and potential benefits.

1.                How do we sell to customers?

2.                How do we provide service to customers and handle exceptions?

3.                What hidden benefits do we offer to customers?

How Do We Sell to Customers?

List the various channels through which customers buy our product or service.  Identify the approximate percentages of sales that each channel represents of the total.

How Do We Provide Service to Customers and Handle Exceptions?

Identify the ways in which customers get help and support for the goods and services that they buy from our company.  If there are multiple channels for help and support, list the approximate percentages (in terms of number of contacts) that each channel makes up of the total.

What Hidden Benefits Do We Offer to Customers?

This can be a gold mine.  There are often things you do for customers who you take for granted.

I once worked with a retailer of gourmet confections.  They had a policy of giving free samples (a single piece of chocolate) to customers.  They never thought about it much.  It was a part of their policy and their training, but they never really promoted it as a customer benefit.

Radio Shack has The Repair Shop at Radio Shack.  Until recently it was invisible in the store.  But it’s a great service.  You can get a wide variety of electronic devices repaired, regardless of whether or not you bought them at Radio Shack.

Both of these are examples of hidden benefits.  Sometimes these hidden benefits (or upgraded versions of hidden benefits) can become value-added features of a loyalty program.

The Technology

Here we review customer information.  We’re trying to understand how much customer information we have and where it resides.  We also review how customers might be linked with purchase transactions.

1.                  Do we link customers with transactions?

2.                  What level of transaction information do we retain?

3.                  How many different customer data sources exist within our company?

Do We Link Customers With Transactions?

A fairly basic question, but one that must be answered.  With some companies this is a natural part of business.  Especially with companies that bill their customers (as opposed to settling payment in other ways).  Telephone companies bill customers so they already have customers linked with transaction details.  Credit card companies also bill customers so they have transactions linked with customers.  Retailers don’t always have customers linked with transactions.  If the retailer has a private label credit program in place, they’ll have transactions linked with customers at least within the segment of their own credit card holders.  They may also have customers linked with transactions from their on-line business, because of the need to deliver goods sold.  You get the picture.  Now how does it work in your business?

It’s not a deal-breaker if you don’t currently link customers with transactions.  It will, however, probably be necessary to do so in the future so you can understand individual customer value and effectively deliver communication and benefits to customers.

If you don’t link customers and transactions now, it’s not all that difficult to do so.  Okay.  If there’s a technology person reading this, he or she may be saying, “Is this guy crazy?  Does he know what it takes to update all of our hardware and software?”

Yes.  I do.  The biggest obstacles have nothing to do with the actual work required.  They have to do with making the commitment and getting the organization behind it.

What Level of Transaction Information Do We Retain?

Once we figure out the customer/transaction linkage thing, it’s time to figure out what level of data we keep or might keep.

For instance, some organizations may just have a single figure that represents how much business a customer did with the company in any given day, week, month, period, quarter or year.  Other companies may have each individual transaction, the product purchased, the date, the time, the location and more.  And most companies are somewhere in between.

It’s best to have the ability to retain as much detail as possible.  It doesn’t mean that you will retain the detail.  It just means that you can.  To make sense of customer data it must be summarized in relevant ways.  If you start with details you can always summarize.  However if you start with summary data you can’t always get back to the detail if it’s not summarized the way you need it.

How Many Different Customer Data Sources Exist Within Our Company?

Do you have five, six, seven or more different places in which customer data resides?  It’s not uncommon.  This is an important stage of the CLA.  We need to understand the location and content of existing data.  But we don’t want people in the organization to start developing specifications for bringing it all together before we know what we’re trying to do.

The effort to integrate disparate sources of data is usually one of the most over-planned, over-engineered and under-delivered technology initiatives in the universe.  And two out of three times it fails.

When you get into the integration process it’s most important to take manageable steps.  Figure out what information and functionality the organization needs and deliver that.  Too often companies get carried away and start defining everything they would like to have.  The planning process becomes more complicated than the planning for a trip to the moon.  And it never gets off the ground.

When You’ve Answered The Questions

There are two reasons to go through the CLA.  First, it forces you to gather important information.  Second, it forces you to go through a process that will give you great insight and wisdom about your organization, your customers and your potential options.  As you go through it, some options and ideas will materialize.  Jot them down as you review a variety of different loyalty options in the chapters to come.

Involving Customers in the Process

An optional but insightful step.  Getting customers to be your collaborative partners in identifying your loyalty options.

These ideas involve creative methods of qualitative research (focus groups).  They provide creative insight directly from customers who may help trigger some breakthrough ideas.

The Customer Brand Collage

This can be insightful in its ability to help you understand how customers see you today and how they would like to see you tomorrow.

Get groups of customers in a room (no more than five customers per group, no fewer than three).  Have them create a collage of your brand now and your brand the way they would like it to be.  Give them posterboard, a variety of magazines and catalogs.  Not just things that relate to your business, but a wide variety of publications and catalogs.  Give them other materials such as glue, tape, glitter, pipe cleaners and anything else you might think of for an art project.

Give the customers this simple direction:  Using the materials you have, create a collage on one board that represents the way you see us today.  Create a collage on a second board that represents the way you would like to see us.  That’s it.  Give them an hour or an hour and a half to work on it.  Then ask them to provide a brief explanation of their work to one person (you don’t want to force customers to give a major presentation to you and your entire marketing staff).  Videotape the explanation if possible.

Have customers develop loyalty programs concepts

This is a more direct tactic.  Keep in mind that when you start talking about loyalty ideas with customers, they will often tell you to “just lower your prices.”  The first thing to do is get beyond that.  If the price topic comes up, just tell customers to assume that sweeping price reductions are not viable.

Have groups of three to five customers create concepts for a customer loyalty program.  Have each group create just one.  Have them list the features of the program.  Have each group explain the concept to one person and videotape it if possible.

Create a customer advisory board

This is more of an ongoing way to get customer guidance and insight.  Create a board of customer advisors.   This may be a large group that never actually meets together, but meets separately in smaller groups.  For instance you might have a few dozen members in each of your key markets.  You have a meeting every month or so (in one of your markets) with a group of local advisors.  You have a discussion with your advisors about your business and their thoughts and ideas.  Once you have a loyalty program in place, this advisory group can be a customer steering committee that helps you keep the program vibrant and relevant.  Be sure to have a way of disseminating information regularly to this group (newsletters, bulletins, e-mails, a special website).

The CLA is an insightful process.  It provides tremendous information and insight that will be essential as you consider options for implementing loyalty tactics.