The Price of Loyalty

Loyalty programs - everyone loves them. The logic is simple: reward your best customers, encourage them to keep buying from you, and the people who are providing most of your revenue will be a reliable source of income. It's obvious - so obvious that it bears a second look.

Good loyalty programs strengthen ties with your best customers. But they are not a substitute for paying attention to your core ability to deliver value to all of your customers. Too often, loyalty programs become a substitute for delivering the right value to all customer.

Airline loyalty programs are a great example of a good idea gone bad. I'll pick on the airline that I fly most often: Continental. I think Continental's "Elite" loyalty program is actually very good. Elite flyers get automatic upgrades to first class when seats are available, accrue mileage faster, and have special (read: shorter) lines for check-in and security.

As often as I fly Continental, I'm not Elite. I fell a bit short this year, so I'm not in the program. This means I will continue to enjoy the non-Elite Continental experience - which is dreadful.

When I talk to Elite flyers, they cite the first-class upgrades as the key benefit of the program. Why? Because Continental's coach accommodations are the most cramped I have ever experienced. I am only 5'8" tall, but am unable to open a laptop, reach for the bag at my feet, or hold up a newspaper in a Continental coach seat. It's truly awful, and it seems to be a consistent feature of every Continental flight. On the other hand, when I've been on Southwest or American lately, things are noticably nicer.

And there's the problem. Continental's loyalty program doesn't really reward good customers - it just protects them from the horrors of the basic Continental customer experience. Because flying coach is so terrible on Continental, they have to protect the best customers from reality.

Compare this to upstart jetBlue, whose frequent flyer program is nothing special. When I lived in DC, I knew many people who raved about jetBlue and few them whenever possible. Then I took one of their flights, and became one of those people.

It was just amazing. The seat was comfortable. The staff was helpful. Everything was just as it ought to be. I hope they come to Houston some day and kick Continental's butt.

Think about it: jetBlue would not have to give me anything to choose their airline whenever I could, because they provide a great customer experience. Continental has to give people something to keep them coming back even when they are a near-monopoly in Houston. Which strategy leads to real long-term loyalty?

By all means, create a loyalty program for your best customers. But make sure the reward is really that - a reward - not a way to compensate for your failings. Because if you are failing on basic customer experience, it is going to catch up with you eventually.

Fundamentals

While you are busy learning more about the ins and outs of web marketing, opt-in email, search engine optimization, and other hot marketing topics, please don't forget the fundamentals.

The other day, I went looking for advertising information for the Houston Chronicle for a project I'm working on now. If you go to the Chronicle's site and click the "Advertising" link you wind up on this mini-site, which is slickly produced and contains all kinds of great information about advertising in the paper.

Unfortunately, it does not include a rate card. I'm looking for very preliminary information, so I really don't want to talk to an ad sales rep. No offense intended to salespeople out there, but that will make the process of getting what I need today take five times longer than it needs to. It also will take up the time of the Chronicle advertising staff, driving up their cost of sales.

I resigned myself to doing that, however, and looked for the
"contact us" link on the mini-site. I was unable to find it. I acknowledge that it may be there, but after looking for ten minutes, I gave up. If it's there, it's very badly positioned.

I sent a note to the Chronicle's web department and while doing that, did a little test. I explained the problem, and explained that I would like to talk to someone in advertising.

I got a note back informing me that there is a link on the site to connect me to them, but with no indication of where it was. And the person in the Chronicle's web department did not think of forwarding my message on to someone in sales.

Of course, I will just call them. But what this indicates about the Chronicle is not pretty.

First of all, the web design is bad. And it's the worst kind of bad: the expensive kind.

Second, there's apparently little understanding in the web group that ad revenue pays their salaries. A marketing-centric (or even revenue-centric) organization is one where someone would naturally forward on a message like mine to the sales department and say, "Hey, this guy is interested in advertising, someone needs to get back to him."

What happens in your organization? Does your web site tell people why they should buy from you - or does it also tell them how? If a buyer lands in the wrong department, does someone get them in touch with the staff member who can start the process? Or does no one outside of sales and marketing care about revenue?

Make it a new year's resolution to shop your own site and see what happens. You may find that sales opportunities are slipping away.

Customer Experience

One of the mistakes marketers make is thinking of marketing only as a specific activity related to things like lead generation, public relations, cross-selling, and the like. As a marketer, you need to remember that every interaction with your organization is part of the marketing process. Creating marketing programs that move you toward defined goals is essential, but you need to go stick your nose into other parts of your organization.

What happens when a customer calls the support center? What does a potential customer experience when they walk into a retail location? What does the process of interacting with your organization feel like? These things are as important as your programs and your product and your pricing. If your colleagues in sales, support, billing, and other functional areas don't think you're a bit of a pest (though hopefully a helpful, contributing pest) you're probably missing some opportunities - or problems.

I recently had one of those customer experiences that's so good that it reminded me of how marketing should pervade an entire company. I've been a customer of AT&T Wireless for years now (and have written here about some of the negative experiences I've had). Their product - the actual mobile phone service - has always been very good. Unfortunately everything else about them made me want to run to another provider.

They were recently purchased by Cingular Wireless, making Cingular the largest mobile provider in the US. Cingular is already doing some things right. Their new post-acquisition advertising campaign is very good. They've gotten all this done in time for the holiday gift giving season. Everything about Cingular suggested to me that they are tremendously better tuned in to their customers than AT&T Wireless ever was.

As the acquisition rolled out, I got just enough information from Cingular about what was going on to make me comfortable, but no sales pitches. That was perfect. By reading bill inserts and looking at the AT&T web site, I understood that nothing was going to change about my mobile service, and no one was trying to get me to spend more money. Perfect.

I also knew that I could switch to a Cingular phone and plan. As it happened, my phone was dying (as Motorola phones tend to far sooner than they should) and I had looked at the Cingular web site and discovered their plans were much better.

So, one afternoon I wandered into a local Cingular retail store and asked about changing over.

This is where I expected things to fall apart. Many companies like Cingular and AT&T Wireless spend a lot of money of ads and PR but then fail to train or equip their front line retail sales force properly. I waited for the inevitable confusion, but what the rep in the store said was, "Do you know which phone you'd like?"

Well, I did. "Great," he said. So we sat down and started the process.

In the course of 30 minutes, every question I had was answered. I knew what plan I wanted. The rep went through optional services without any big sales pitch, and I signed up for a few of them. He explained the key features of the phone and pointed out the manual, where I could get more details. I asked if I could keep the old phone, since I had a lot of numbers stored on its SIM card. "Oh," he said, "I can just transfer them to the new phone for you." Which he did.

The packet of information was more than the usual long service agreement that you get from a mobile provider. It actually included a sheet with pictures of what my first two bills would look like, showing one-time charges, partial month charges, and illustrating what a regular monthly bill would look like. Best of all, these weren't just sample bills - they were my bill, with actual dollar amounts that matched my service. And when the first bill came, it looked exactly like the sample they'd created at the store. There was a rebate on the phone I'd chosen, so they provided me with a second receipt to mail in, made sure I understood what part of the box with UPC codes I needed to include, suggested a wait a while to do it in case I wanted to return the phone, and gave me the rebate form with all of the annoying details (model numbers, serial numbers) already filled in.

The process was pleasant and efficient - so much so that I wound up buying things I hadn't meant to, like a Bluetooth headset and a cradle device that forwards calls to my land line when I'm home without using any of my mobile minutes.

Cingular got it right in every way. Before they acquired AT&T Wireless, I'd been thinking of switching to T-Mobile. I walked out of the Cingular store with exactly the phone I wanted, completely happy with the experience, and very pleased to be a Cingular customer.

Note that none of the things that they did are that unusual or require great investments in technology. Obviously, someone at Cingular sat and thought about what a customer should experience when they get service, created a process around that, and then trained the retail staff in how it should work and provided all needed supporting material.

Is that marketing? You bet it is. Not only did they sell me more than I had planned to buy that day, I left feeling totally happy with my choice.

That's how you increase your per-customer revenue. That's how you keep customers longer, lowering your average per-customer acquisition cost. That is marketing.