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Chapter 1: Carolyn's LamentCarolyn Johnson is shopping for a new wallet to go in her handbag, and she's not happy about having to do so.
Carolyn is a marketer's dream customer-a 38-year-old fashion industry executive, married with two children, two dogs, a cat, two computers, and a six-figure household income. Her job requires substantial business travel. She communicates with business associates and friends by e-mail, and she's a Net surfer. Every consumer marketer wants to learn how to capture more business from customers like Carolyn. Marketers are reaching out to find every way possible to solve the problem of keeping Carolyn as a loyal buyer. Have too many started with loyalty card programs?
This is not a book solely about loyalty cards, but as loyalty schemes have spread quickly across industries as companies use them to try to buy loyalty, it is important to look at the actual influence on customers. The card issuers think they have solved their problem, but they haven't helped Carolyn.
Carolyn's problem: She has lots of loyalty cards-too many, in fact. Her three bank credit cards, two supermarket loyalty cards, six hotel loyalty cards, eight airline loyalty cards, two rent-a-car loyalty cards, two department store loyalty cards, plus loyalty cards from her long-distance phone service provider, her drugstore, her gasoline company, her newspaper company, and her two favorite specialty stores simply won't fit in any wallet she has been able to find. She is not a happy camper. What have we done wrong?
Our first question is, have any of these loyalty card programs made Carolyn a "loyal" customer? We asked Carolyn.
I never think about these cards as loyalty cards. Of course, I like the discounts. I like some of the perks, but the truth is I feel as though I have to carry some of these cards to keep from being ripped off. If I don't have my card with me when I shop in the drugstore or supermarket, I pay higher prices. I feel as though I was better off before the card programs when I could save on the supermarket's advertised specials without having to go to the trouble of carrying their card. Most of the discount cards are a hassle. The programs that make me keep track of points are an even bigger pain. No, I can't say any of these schemes make me loyal to the card issuer-well, maybe some. I like the things that make my life easier or save me time. I like my "Executive Platinum" privileges on American Airlines that let me board early while there is still room in the overhead bins for my roll-aboard, and, of course, I like the upgrades to first class. I like having my car ready with the trunk open and the heater running at "Avis Preferred," and I appreciate the time I can save with the separate check-in for "Diamond Honors" members at Hilton Hotels. I will go out of my way to stay with these folks, so I guess you can call that loyalty.
But discounts and points won't cut it. Discounts are no big deal. It seems as though the department stores are 40 percent off every day. Why do I need a 25 percent off coupon? I often wonder why so many of these companies think they can buy my loyalty. Why can't they understand what I really want from them?
And now, because of all these stupid programs that make me do the work, I have to waste my valuable time trying to find a wallet that will hold 29 cards!
Is our friend Carolyn a typical customer? She really exists. We've just changed her name to protect her privacy. Perhaps she's not the average customer, but she helps us focus a laser beam on a serious challenge for marketers. The proliferation of loyalty initiatives is not limited to card-based programs but marketers' new drive to develop customer loyalty is reshaping the business landscape, rewriting the rules of competition, and changing the nature of customer relationships. The average U.S. consumer in a loyalty marketing program participates in 3.2 programs. Sixty percent of U.S. supermarkets now have loyalty programs, yet household panel data show that even heavy shoppers give their preferred supermarket chain only half of all their grocery spending. One-half of all U.S. households now belong to a loyalty program. In Chicago, Charlotte, Los Angeles, Buffalo, and New York, over 70 percent of households shop with some retailer's loyalty card. All of these programs are capturing valuable knowledge about their customers. Many programs are driving sales. Few are building loyalty.
If marketers really want to build customer loyalty, how can they use the knowledge they are gaining about Carolyn's interests to deliver benefits she wants, to make her feel better about having to buy that new wallet, or, better yet, to build a real relationship that doesn't require her to even carry the card? As one expert has said, "Most loyalty program failures occur because a marketing organization cannot answer a fundamental question: They don't know how the customer benefits from it."
CRM executed properly in true Itol fashion is a big change from the traditional database marketing that focused on targeted promotion...