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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...
When marketers first began to understand the customer leveraging capacity of the accumulating customer information, they rushed into all kinds of costly bribery schemes under the guise of "loyalty programs." Most believed that their points and discount programs would build loyalty, yet customer satisfaction rates remained at an all time low.
In our consulting practice we have seen, firsthand, the confusion that exists between trying to buy customer loyalty with points and discounts versus earning customer loyalty by providing value in ways that are meaningful to the individual customer in her or his terms. We have learned that you can't buy customer loyalty.
The building of customer relationships must go beyondour earlier database marketing efforts, beyond the concept of 1 to 1 marketing, and far beyond today's loyalty program rewards that are not building customer loyalty as many had hoped they would. The challenge for executives in any company who are concerned with keeping customers coming back is not points and discounts. It is Customer Relationship Management.
CRM is now moving to the center of corporate strategy as a process of learning to understand the values that are important to individual customers and using that knowledge to deliver benefits the customer really wants and making it easier for the customer to do business with the company.
To get full benefit from loyalty.com, it is not necessary for you to have read The New Rules of Marketing. The first book was about the process of database marketing that was company-centric, that is, targeting customers to sell them more at less cost. loyalty.com, by contrast, is a study of customer-centric marketing that will teach you to concentrate on customer benefits and values rather than what your company wants to sell and thereby to strengthen the relationship between your customer and your company.
What makes this book unique and especially timely is the blending of the strengths of CRM with the new marketing tools appearing in these early turbulent days of the Internet era. The Internet will be part of any new marketing solution and will build a new culture not unlike the revolution that shopping malls created in the 1970s and 1980s that redefined not only how consumers shopped but how they spent their time.
This book defines CRM and teaches how you can use the CRM process to add value to the customer relationship in the customer's terms to maximize the value of the relationship to the customer for your customer's benefit and your company's profit. It explains why CRM is much more than an outgrowth of direct marketing, why the Internet is such a vital tool, and why these new challenges call for new and different skill sets. It delivers practical, workable guidelines and strategies for the creation of successful CRM projects on and off the Internet and provides action steps for those wanting to sharpen their CRM skills. With case histories from manufaqturing, packaged goods, retailing, banking-even mediathis book brings the exciting principles of CRM to everyone whose success depends on selling to customers: consumers, business to business, any kind of customer.
The profit rewards of creating close connections with customers can be substantial, but they will not be gained by skimming over the fundamentals of relationship building. The real winners have learned Customer Relationship Management cannot be just another campaign. It must be a continuing process-a dedicated, enterprise-wide effort driven from the top and embraced by everyone at every level of the company.
Thanks must go first to the many fine people at the companies with whom I work throughout the year. I learn from every visit.
Then to the many folks who made special contributions. Paul Leblang for again reading early drafts and heading me in the right direction, and my editor at McGraw-Hill, Kelli Christiansen, for persuading me that the Internet had to be an important part of any study of Customer Relationship Marketing.
For the foreword I went to the one professional certain to agree with the premise of this book-you can't buy customer loyalty. My sincere thanks to Martha Rogers for accepting the challenge.
I am grateful to Garner Bornstein, of Generation Net, for helping me learn the ways of the Web, Julia Adamson of @Once, for teaching me about strange things like streaming media and the wonders of e-mail, and to my other e-mail guide Regina Brady of Acxiom Meh & Speh/Direct Media.
Equal thanks to Todd Alexander of Kreber Graphics and James Morris-Lee of the Morris-Lee Group for helping me through the technicalities of digital printing. Thanks, as always, to my associate, coach, copy editor, and severest critic, Helen Blanchard, and my assistant, Dottie McLean, for the many hours they spent helping me to get things right. And to my wife, Harriette, for putting up with it all with patience and loving care.
When I met Don Peppers in January 1990, we knew that communication was being miniaturized and that technology was giving us newfound powers. Over the next three years, we devoted nearly all of our attention to figuring out what that would mean for business. Our first book, The One to One Future: Building Relationships One Customer at a Time, appeared in 1993, before widespread use of the Web. Back then, we proposed that as the Industrial Age inevitably yielded to the Age of Information and Interactivity, strategies of successful companies would likewise have to change. Thus an enterprise would plan strategies designed to win share of customer rather than market share and to measure its success on retention, customer equity, and returns on data assets rather than just on ROI and market share. Companies would learn to measure each customer's profitability and put customer managers in charge of portfolios of customers. More and more, the enterprise would bring products to customers, not just customers to products. The resulting 1to1 enterprise would engage in a Learning Relationship with individual customersthat worked like this.
I know who you are. I remember you. I get you to talk to me. And then, because I know something about you my competitors don't know, I can do something for you my competitors can't do-not for any price.
This means the customer actually adds the value to what you can do for her and will find it easier and less costly to do more business with you than to start over somewhere else. You will help her create her own barrier to exit. You will no longer buy her loyaltyyou will sell it to her.
In working with blue-chip clients worldwide, we have learned a great deal about the strategies an enterprise will follow in progressing toward 1 to 1 The first requirement is to identify customers-to tag them so that each one can be identified through any channel, across transactions and interactions over time. Once an individual customer can be seen as one complete customer across the enterprise, the enterprise can differentiate customers by both the different values that customers have to the firm and the unique needs that each valuable customer has from the firm. To learn enough to differentiate customers, the enterprise will interact with customers and keep track of these individual dialogs, learning a bit more with every interaction, at every touchpoint. Finally, the enterprise will embark upon the hardest strategy: customization, or treating different customers differently, often by automating the personalization process in a way that increases customer loyalty even as it almost inevitably reduces the cost of operations.
These steps are tough. Those companies that can achieve the first three-identify, differentiate, and interact-can claim to have achieved CRM and database marketing. The enterprises that go one step further, which learn to use feedback from each customer to customize for each one individually, will be engaged in active ltol Learning Relationships.
Six short years and three books later, now everybody wants to "do CRM." Consulting companies, software enablers, client businesses, large and small, public and private, business to consumer and business to business-all want to get under the CRM umbrella. The irony is that Customer Relationship Management is often none of those three: Often it's not about the customer; it's about the sales force. It's not about relationships; it's about data mining. And it's not about management; it's promotion marketing. Fred. Newell, in his first book, The New Rules of Marketing (1997), began the process of offering practical advice to companies trying to make the transition to CRM and 1 to 1. Here he continues, in even more depth, by offering real help that turns data into strategies, and customers into equity.
Most managers and companies have heard the wakeup call, and they believe that customer centricity is the key to success in the future. The hard part now is becoming fluent in alternative thinking, strategies, and tactics-breaking away from the responses and policies that our parents and grandparents taught us for the past 100 years. Fred. Newell, in his practical style, tells you how in simple, straightforward language and then punches the point with one realworld case study after another. I can already envision many readers using the case studies to make the argument for funding their Ito l pilot programs and CRM initiatives. The new chief relationship officers, customer portfolio managers, CRM consultants, business-oriented IT and CIO leadersand ltol pioneers-are dedicated to turning customers in valuable assets. The question now is how to get CRM done. This book will tell you how.