Customer%20Loyalty%20How%20you%20can%20foster%20it%20and%20profit%20from%20it%20Keynote%20San%20Francisco%20DMA%20March%2016,%202006%205:30%20PM%20Arthur%20Middleton%20Hughes%20VP%20Solutions%20Architect - PowerPoint PPT Presentation

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Customer%20Loyalty%20How%20you%20can%20foster%20it%20and%20profit%20from%20it%20Keynote%20San%20Francisco%20DMA%20March%2016,%202006%205:30%20PM%20Arthur%20Middleton%20Hughes%20VP%20Solutions%20Architect

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Are less price sensitive. Are less costly to serve. Are ... eBay, Amazon, USAA scored 75 to 80. Brian Woolf on Loyalty. Sales always grow when prices are cut. ... – PowerPoint PPT presentation

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Title: Customer%20Loyalty%20How%20you%20can%20foster%20it%20and%20profit%20from%20it%20Keynote%20San%20Francisco%20DMA%20March%2016,%202006%205:30%20PM%20Arthur%20Middleton%20Hughes%20VP%20Solutions%20Architect


1
Customer LoyaltyHow you can foster it and profit
from itKeynoteSan Francisco DMAMarch 16,
2006530 PMArthur Middleton HughesVP
Solutions Architect
2
Why loyalty is important Long term
customers
  • Buy more per year
  • Buy higher priced options
  • Buy more often
  • Are less price sensitive
  • Are less costly to serve
  • Are more loyal
  • Have a higher lifetime value

3
Loyalty is measured by the retention rate
4
Retention pays better than acquisition
5
Two Kinds of Database People
  • Constructors
  • People who build databases
  • Merge/Purge, Hardware, Software
  • Creators
  • People who understand strategy
  • Build loyalty and repeat sales
  • You need both kinds!

6
Relationship Buyers vs Transaction Buyers
  • Transaction buyers are always shopping for the
    best price. They have no loyalty.
  • Relationship buyers are looking for a friendly
    institution that treats them well and provides
    good service.
  • Relationship buyers will stick with you when your
    prices go up.
  • Transaction buyers will leave for a dimes worth
    of difference.

7
(No Transcript)
8
Loyalty and Affluence
  • Wealthy customers are more loyal
  • 92 of 125K are in airline loyalty programs
    compared to 51 of all
  • Wealthy customers do not want discounts. They
    want status and perks.

9
Loyalty and Preferences
  • Customers who register their preferences are more
    loyal than others
  • Once you know what they want, you have to give
    them what they want!
  • Awarding points or miles works.

10
How Sears Determines Preferences
How I feel about brands I typically buy top
of the line name brand products I buy name
brand products at a moderate price I am always
looking for a bargain. I will try any brand if
the price is right. How I feel about technology
I buy products with the latest features
innovations I buy products with mainstream
features technology I am not interested in
technology, keep it simple for me Home status
Home Owner Renter Lived in my home for
less than 6 months Plan to move in the next 6
months Plan to remodel in the next 6 months
Presence of Children Baby (Age 0 - Age 1)
Kids (age 1 - Age 12) Teenagers (age 13- Age
18) None
Create your segments based on these answers
11
What Reichheld said about loyalty
  • Frederick Reichheld in The Loyalty Effect pointed
    out that some customers are loyal and some are
    not.
  • He suggested that companies should start by
    trying to attract the right kind of customer to
    begin with.
  • Loyalty and disloyalty can be predicted early in
    a customers career.
  • One insurance company, he said, found that
    disloyal customers were often
  • Single people, rather than married people
  • Renters, rather than homeowners.
  • People who responded to low-ball discount offers
  • People who respond to temporary sales

12
How to determine your net customer promoter index
  • Ask all customers a single question

Frederick Reichheld The one number you need to
grow
13
Determine your net promoter index (Promoters
minus Detractors)
  • 41 minus 24 is 17 that is your net promoter
    index
  • Average of 400 companies was 16
  • eBay, Amazon, USAA scored 75 to 80

14
Brian Woolf on Loyalty
  • Sales always grow when prices are cut.
    Unfortunately, new customers attracted by such
    promotions typically exhibit low loyalty and
    require constant price feeding to keep
    returning which means continued lower gross
    margins.
  • Heavy promotional pricing is not a recommended
    tactic for building loyalty.

15
Ruin your customers with discount price offers
  • Low ball offers, discounts and coupons bring in
    the wrong kind of customers
  • They train your good customers to think about
    price
  • Discount customers
  • spend less, less likely to stay
  • are more costly to service
  • make good customers feel cheated

16
Maintaining loyalty
  • Communicate with your customers often
  • Thank you for your order
  • Your order was shipped today track 44455
  • Did your order arrive OK?
  • Make your communications relevant
  • You have Release 2.0, Mr. Hughes
  • Release 3.0 will double your speed
  • To find out about it click here.

17
Many customers are profitable some are very
unprofitable
This 28 lost 22 of the banks profits!
Bank Customers by Profitability
18
Customer Status Levels
19
Status Levels and Marketing Segments
20
Segments are essential for marketing
  • Many customers are quite different in their
    purchase patterns
  • Create actionable segments and determine the
    value of each
  • Use the results to focus your retention programs
    and acquisition programs on the most profitable
    segments

21
Building Loyalty by Cross Sales
22
How to sell a second product
  • Customers who have more than one product have a
    higher retention rate.
  • Two reasons for second product
  • Profit from the new product
  • Retain customers for the existing one.
  • An insurance company with independent agents used
    a model to predict the Next Best Product for each
    customer
  • Offered a 10 discount on first product if second
    is purchased

23
Create personal notes from agents
Dear Bob Kitty As I figure it, you could
save about 206 per year on your auto premium.
Call me today! Susan
24
Automatic follow up note
Dear Bob Kitty I havent heard from you on the
letter on the new homeowners policy. The
savings on your auto policy are terrific. Call
me. Susan Hughes
25
How did it work out?
  • 89 of agents invited went to web and
    participated.
  • 52 created personal notes
  • Recipient HH bought 11 more than the controls
  • Follow up letter created 8 more sales
  • Follow up phone gained 43 more.

26
Conclusion This method works!
  • Personal notes increased sales by 140
  • Model prediction Top decile sales 68 over
    average and 195 over bottom decile.

27
Travelers Insurance
  • Costs 20 times as much to acquire new customers
    than to retain existing ones
  • Customers want communications
  • Contacts should be conducted locally
  • 1 increase in retention is worth millions

28
What the retention database program provided
  • Systematic process
  • Turnkey operation
  • Customer segmentation
  • High quality communications at minimum cost
  • Personal, professional
  • Building a customer relationship
  • Agents paid all the expenses

29
Database Analysis to support Travelers
communications
  • Profile the customer base.
  • Who is staying? Who is leaving?
  • Establish measure of customer desirability
  • Determine profitability
  • Determine lifetime value
  • Use these to drive segmentation and retention
    strategy

30
What happens during a year
  • Letter 60 days before annual renewal
  • Annual review
  • Thank you card in 1st quarter
  • Cross sell postcard in 2nd quarter
  • Newsletter in 3rd quarter
  • Seasonal card in 4th quarter

31
Results
  • Increased the customer retention rate from 85.1
    to 90.5 -- compared to controls. Worth millions
    of dollars to Travelers.
  • All previous programs had been subsidized . They
    had all failed
  • In this program, the agent paid for all. In prior
    programs, the agent risked nothing
  • In this program, the agents wanted to make sure
    that their money was not wasted
  • 62 of customers who left, never talked to an
    agent first
  • 80 of people who talked to an agent did not
    leave.

32
Summary how to build loyalty
  • Recruit loyal customers to begin with
  • Create status levels for your customers
  • Create marketing segments
  • Develop a relationship with each customer
  • Communicate often
  • Sell a second product to build loyalty
  • Work to build your net promoter index

33
Books by Arthur Hughes
From McGraw Hill. Order at www.dbmarketing.com
Contact Arthur
arthur.hughes_at_kbm1.com
34
Thank you!
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