10 Steps to Transformation

Looking to a new year of challenges, uncertain economic future, questions about rising taxes, medical premiums and gasoline impacting consumer spending and confidence, marketing takes an even more important role in the wellbeing of a company’s future.  Marketing is no longer purely about segmentation, media, advertising and unique selling propositions.  It’s also about technology, big data intelligence and most overlooked is the marketing master’s role in blending the traditional aspects of the trade with the new aspects unveiling the thought leadership needed to create the recipe for survival.  It’s called- TRANSFORMATION.

Let’s try to stretch our thinking to be transformative by taking on the exercise or challenge that pushes thinking beyond pulling the traditional levers or at least pull them in a nontraditional way.  It’s this approach to marketing that will separate the current marketers from the future ones or perhaps the good ones from the great ones.





Bounce Wireless



Introducing the fictitious company “Bounce Wireless" (a subsidiary of Forward Communications Co).  Bounce has a thriving business of selling prepaid cellular phone services.  They predominantly serve the underserved meaning a demographic that has is not very affluent; live a little closer paycheck to paycheck.  These consumers enjoy the flexibility to buy minutes and services as they need them with no long term commitment.  However this value proposition that makes Bounce so attractive has become their challenge.

THE CHALLENGE:

Bounce does not have customers signed up to 3 year service agreement like their competition.  Bounce has much more instability forecasting their revenue streams because if the economy gets tough or the market gets competitive the Bounce customers can delay purchasing.  Bounce’s competition can predict with a high degree of certainty what their revenue will be because of long term contracts.  As a result the competition can invest in R&D, infrastructure and marketing with much more confidence.

THE GOAL:

Bounce has determined they would like to also obtain 3 year agreements from a customer base to create more financial stability.  Otherwise, Bounce needs to operate like a retailer hustling for sales every week to hit a forecast which is very unpredictable. 

·         #1 TRANSFORMATIONAL MOMENT- UNDERSTAND YOUR ULTIMATE GOAL

Most companies quickly jump to “how” they want to address a perceived goal before they take a moment to recognize “what” the true goal is.  Ultimately the parent company Forward Communications underlying goal to generate more value for their shareholders.  Stepping back that could mean signing customers up for more 3 year contracts but it doesn’t have to mean that’s the only or most optimal way to achieve the underlying goal of delivering more value to the shareholders.  But what to do next?

·         #2 TRANFORMATIONAL MOMENT- TAKE INVENTORY OF YOUR ASSETS

Bounce Wireless has several core assets and here are a few:

1.      Recognized name brand

2.      Retail locations where their current customer base lives/shops

3.      National wireless infrastructure network

4.      Smart and eager employee base

5.      A relationship with the underserved demographic

So how can Bounce leverage these assets to achieve the “ultimate goal”?  One way is to use an old marketing principle of search for the “white space” or in other words where are your assets different than the competition.  The obvious difference is item #5 “a relationship with the underserved demographic”.  But isn’t that asset what’s causing Bounces instability?

·         #3 TRANSFORMATIONAL MOMENT- LEVERAGE YOUR UNIQUE ASSETS TO CHANGE THE THEORY OF THE BUSINESS:

Bounce determined that one way to create more stability in their current revenue streams is to deepen the relationship with its current core customer.  How can Bounce “lock-in” this customer (maybe not into a 3 yr agreement as this group is shy to that idea) to be more loyal and consistent with their spending?  Ultimately Bounce Wireless had to determine what this core group had in common. It was a need for cost effective basic financial services.  Here are a few TRANFORMATIONAL IDEAS Bounce brainstormed:

1.      Free In-store check cashing services

2.      Payday Advances

3.      Advanced Minute Purchase Discounts

4.      Free 1040EZ Tax Preparation

Rationale for these programs was to drive frequent store traffic with the current base and more dependence.  Offer services to “current” customers with active minutes or contracts OR those who were going to enter an agreement with bounce ex. Free check cash with purchase of minutes.   Think of it as a loyalty program but your membership card is active service.

Not all of these ideas will pass the proforma test but it does change the way Bounce could leverage one of their assets to transform into a financial services company as well as a wireless provider.  It’s what Peter Drucker would call changing the “Theory of the Business”.  Bounce can leverage their current relationship with this underserved customer base in a new business model creating more store visits and customer lock-in to their wireless services (as these cost effective financial services are only for Bounce Wireless customers).

·         #4 TRANFORMATIONAL MOMENT- DID A CHANGE IN THE THEORY OF THE BUSINESS CREATE A NEW ASSET?

If bounce offered free check cashing or tax services it could better understand the differences in the economic health of their customers.  Bounce could mine financial data which is hard to acquire because this group is more cash oriented and therefor leaves less of a data trail on their spending habits.  This new data asset could be leveraged to better target offers and services that might be appealing.  Example: A specific family plan of minutes could be offered to a specific customer type based off the insight of their dependents and income derived from their tax preparation information as a part of the agreement for Bounce to prepare the tax documents.  Bounce could even highly predict when this customer would get their tax refund and simultaneously entice them with an offering.

Additionally Bounce understanding of specific people’s payday schedule (every Friday or 1st and the 15^th of every month) to create custom billing approaches.  These billing approaches could perhaps make a longer term agreement more palatable for some where their payment is automatically deducted upon having their check cashed in-store on a regular basis.

·         #5 TRANSFORMATIONAL MOMENT- IS YOUR ASSET YOUR ENEMY?

As you recall one of Bounce Wireless assets was they had a recognized name brand.  The ironic situation is having a strong brand can be problematic at times when transformation is desired.  In this case Bounce was a recognized brand, but it was recognized as a pre-paid wireless company.  The customer base Bounce now desire is one who doesn’t want pre-paid services and may not want to be affiliated or have the confidence in a company who serves the other side of the economic spectrum.   So how can Bounce Wireless overcome this dilemma?

·         #6 TRANFORMATIONAL MOMENT- LEARN FROM OUTSIDE YOUR INDUSTRY

There’s a pretty good chance there is another business that has faced the same challenges Bounce currently has.  A fresh perspective can stimulate new thinking and inspiration.  In this case Bounce looked to the auto industry.  Interestingly Toyota and Hyundai attacked the problem of having a brand identity challenge to reach a new desired market.  Both car companies did it in their own way.

 In 1989 when Toyota decided to expand beyond their current customer base into a more affluent customer they knew they needed a luxury line-up.  Toyota decided that the current brand did stand for quality and practicality but that was not everything the brand needed to be if it were going to capture the coveted luxury customer.  The decision was made to create a new brand, one that was backed by Toyota but didn’t present the mental brand barriers to entry into the market.  Hence the Lexus was born.  Still a quality car and practical but practicality was redefined to the pallet of the more upscale auto customer as Toyota now is a seriously player in the luxury auto space and Japan’s #1 make of premium cars.

Hyundai attacked the same problem completely differently.  Hyundai overcame the lack of consumer confidence in their quality by backing the car with the first 100,000 mile warranty.   Now Hyundai closed some of the gap Toyota had in the quality perception and the base models were priced to buy its way into the market.  Hyundai created a good mass market car strategy. 

Hyundai enters the luxury market.  When Hyundai created the Genesis it was a car that was advertised to outperform Luxury cars like Porsche (click for video).  Even later a more upscale luxury model the Equus (click for video) selling in the US between $50-$60k with many superior luxury amenities when compared to its luxury rivals.  It appeared Hyundai was going to use a similar “mass” car strategy to enter the luxury market.  Feature up the car, under cut on price.  What Hyundai didn’t do as well is count on the barrier to brand on a more brand sensitive luxury consumer. 

Hyundai’s miss step (if it had one) was understanding that one of the benefits of manufacturing a luxury product is to be able to charge a premium for it, from a customer who could afford to do so.  The mental barrier a BMW or Mercedes driver had to overcome was giving up brand badging to obtain the same luxury features to for a better price.   What appears to be happening is the upscale Hyundai models are appealing to their same customer base who would like to stretch into the luxury space vs. actually capturing new customer’s in the existing luxury space.  So although Hyundai has “the product” to be in the market, they are unable to command the premium for doing so.  One could wonder if Hyundai would have taken the same approach to luxury as Toyota did they could be a more dominant force in the upscale market.

·         #7 TRANSFORMATIONAL MOMENT- BE CALCULATED,  BE BOLD

At this time Bounce was investigating if they could really convince the more “luxury” type of customer (more affluent and open to 3 yr contracts) to sign-up with their brand vs. many of their formidable competitors.  It was at this time, Bounce Wireless decided to do something bold.  Its parent company Forward Communications was exploring the idea of launching a new brand of wireless provider specifically aimed at the more affluent market under the name Forward Wireless.

Forward Wireless concept had many challenges to tackle.  Store locations, competitive services, launching a new brand all had significant costs but already having a national network of cellular infrastructure (leveraging an inventoried asset- Bounce Network) already in place was huge because that was the most expensive capital investment.  Forward Wireless wanted to leverage the improved efficiencies (another new asset) realized in the Bounce financial services business to assist in funding the Forward Wireless deployment.  

·         #8 TRANSFORMATIONAL MOMENT-  IDENTIFY YOUR CULT

      This transformational moment could be looked at as a “segmentation” exercise but that would be wrong.  A segment is a broad view of a population, a cult it a little more personal.  It’s a following, it’s a passion, it’s “your” people.  There are plenty of brands that have a demographic or psychographic view of their customer base but a cult is different.  Think Apple, think Harley Davidson, think NRA, think Obama (you don’t have to agree with the brand to recognize a passionate following).

Forward Wireless new expansion would like to do more than slug it out with other communications companies that would result into shedding profit in order to buy into a market.  So they found a cult- Moms.  What do they all have in common?  Kids.  What are they all faced with?  Expenses.  But how to leverage the idea?

·         #9 TRANFORMATIONAL MOMENT- RELEATE TO YOUR PEOPLE

If Forward Wireless was going to speak to Mom’s it’s going to have to relate in a unique way.  Now Forward Wireless could try to speak about technology and over invest in R&D on features she would like to have to communicate and know where little Johnny is- and that’s not bad.  However, that won’t create a cult.  That won’t prevent price shopping or sensitivity.  A cult must strike a deeper passion.

Introducing “One Step Forward” program from Forward Wireless.  It’s where parents (and mom’s) learn that 1% of their Forward Wireless contract charges are saved in a college fund for their children.   Same reliable services and cool devices other carriers have.  Same national coverage but with a cause.  Those who don’t have children are making a difference because Forward wireless “goal” is to have $100,000,000 for education by the time Children of today are ready for college.  It can be for books, for schools etc.  Education institutions can also receive 1% of the proceeds if college faculty and alumni sign up with Forward Wireless and elect to support their school in this way.  Now the passion passes from moms to the educated, the Alumni where loyalty runs deep and financial stability is higher for the educated and the target for Forward Wireless.

·         #10 TRANFORMATIONAL MOMENT- HAVE YOUR CUSTOMERS BE YOUR EVANGILISTS

 Forward Wireless now has to manage assisting universities sign up Alumni to the One Step Forward cause.  Principles inform parents on their child’s first day of kindergarten how much money they can have for college just for switching when their current contract is up.  Inner city social groups and churches have a deep passion to see economic improvement in the social classed.  These groups passionately reminding their staff, their members and their friends of a simple message:

When you talk are you really saying anything? 

Take a Step

One Step Forward ^{Forward Wireless}

Ten steps that are only as limited as the creativity of your mind.  This is the place of the new marketer.  To not only have creativity for clever ads or calculated media buys but also for strategic thinking that will desire data and new technology to leverage it, transformational thinking to change the Theory of the Business while never forgetting that people are a social species and always looking for someone or something to be a part of.

TRANSFORMATION CONCLUDED

 

Marketing in the 1st Degree

Today all the rage in marketing is trying to find ways to crack the digital code. How can marketers reach more customers for less?  How can we monetize social media since the bank will not allow deposits of Face Book "likes" as currency?  What's the right mix?



Consumers bombarded with media



Consumers find themselves in a media war with push media such a TV, Radio and other traditional media just intercepting them with messages. Simultaneously consumers are pulling media through social channels such as Twitter, Facebook, Aps and other web content.  Finally to add another layer of complexity within all the pushing and pulling is the device all these marketing interactions are taking place on.  As a marketer should you be conquering on-line desk top?  The Lap Top? Mobile Phone?  Tablet? 

Are there tradeoffs with traditional media where it should be abandoned?  Think about it, you could abandon push media like TV but Television and on-line video are growing at a substantial rate (about 9% since 2008).  TV is not just viewed in the living room anymore as its consumption occurs on many smart devices.  So if you want to own mobile, you might need to own TV and visa versa.  You can own Internet radio like Pandora being consumed on any connected device or traditional radio being consumed in automobile during high drive time.  You see, the lines are truly blurred.  If you believe one media is right for you to reach your audience there may be many expressions of it across multiple devices.  Like it or not you’re in a whole new game as a marketer.



Technology is evolving behavior



What's really happening isn't a revolution rather an evolution of marketing.  In many cases the same types of customer interactions are happening in new ways.  If you cancel your TV production budget because you exit TV you can quickly  find yourself replacing that budget with a new one because of the need to develop video for on-line and mobile purposes.

While all these mysteries on how best to reach a customer for less you may want to focus on how to improve ROI across all touch points and then choose the most profitable for your situation.  I call this "Marketing by Degree" with the goal always being "Marketing in the 1st Degree".

Here's how it works, first put aside all prejudices, likes or dislikes for any particular media you use to connect with customers.  Look at your mix and break it down by marketing degrees:

Marketing in the 3rd Degree: Mass marketing.   Don't know the customer outside of broad segments like Women 25-54.   However you can reach the masses somewhat efficiently.  Think about newspaper, TV or Radio.

Marketing in the 2nd Degree:  You know the customer or something about them but you are not sure they are in the need state to buy what you are selling.  Think about a customer who has a private label credit card such as a store credit card.  The store knows the customer’s credit line and availability.  May not be sure she needs right now what you’re selling but she can afford it so you make an offer to her in her credit card bill with a coupon.

Marketing in the 1st Degree: You know the customer well and or you know the customer has a high likelihood of being in the market for your product or service.  Think about a person in your CRM database that has identified she has school age children and it is back to school time.  You may send her an email with a school supplies offer just when she is in need of such items.

The ultimate challenge for marketers is to look at their overall marketing mix and drive the productivity by marketing by degree.  Continuously attempt to turn whatever marketing vehicle you have up one degree to strive for improved ROI.  At the end of the day it's not necessarily about "which media you use" but "how effectively you can use it" to make money.  Going to a media or running from one based on the suspicion of a trend or future migration could put you in the situation of leaving money on the table.

Things to consider and questions to pose to yourself:

- What degree is my email campaign?  Just because its email doesn't mean it can't be 3rd degree mass marketing where everyone receives the same offer and email.  Can you customize so the knowledge you have about the customer could change the content to be more personalized archiving a higher response rate?

- What degree is my traditional marketing approach?  Pure demographics? Can the media buy and message be refined to appeal to your target even more?  Perhaps its distribution can be refined by a degree?  Today companies with large CRM databases are exploring ways to send specific advertisements to customers through their cable providers.  Imagine how much TV could be turned up a degree if two neighbors watching the same TV program actually received different commercials based on their interests or current need state!

There are many ways to increase the marketing degrees in your marketing mix resulting in an increased degree of confidence and profit from your marketing overall.  So turn it up!   Leave behind what doesn't work without prejudice.

What ways can you think of turning up your marketing mix by a degree?  Please share or comment.

The Color of the Year Is....

As marketers we all think of color as a part of our brand guidelines.  Interesting while many brands strive for consistency in color the world in which brands live are in defiance of such consistency rules.  From automobiles to fashion the staple colors of black and white always ring true but then the tug of war takes place to determine where the social acceptance of color will land. 

In 2012 the Pantone Color of the Year is Tangerine Tango!  

To get all the RGB details on the color visit the Pantone Website .  The color is described and romanced from seductive to sophisticated on the Pantone website along with pics and where the color will arrive in the fashion world.  As a marketer if you find yourself needing to make a color choice but have some liberty to choose (or indifference) you could always choose Tangerine Tango and justify that you are keeping up with current trends.

Color does keep our world interesting as marketers because it gives us something new to say- and show off.  Remember when Mac created the big bubble like monitors (iMac) that looked so compelling on TV (Click for Commercial)?  Recall when Motorola StarTac flip phones just came in shades of black and then Nokia introduced an array of colors and mobile phone’s transformed from a communication device to a fashion accessory?  Mobile phones remained fashion forward through the Moto RAZR days until ironically Apple took the color away and replaced mobile fashion with mobile functionality of the better user interface and mobile ap frenzy delivered by the iPhone.  Fear not as Apple has once again found its color in the latest iPad even better Retina displays (Click for Commercial).  I only wonder if Apple would consider Tangerine Tango?

Many things in life are black or white but never forget we all live in color. 

MarketngGr8nes- An Aspiration Not a Declaration

Looking Back at the Up-Fronts

X-Factor at the Up-Fronts

What would you learn about your brand if roles were reversed?

Back in May $9B of TV advertising money was in NY looking for TV networks to call home for their messages in 2013.  Media buyers united in for a barrage of presentations, performances and parties put on by the TV networks putting their best content forward hoping to lock up the share of the wallet the audiences had available.  From Radio City Music Hall to Carnegie Hall the TV stars, rappers, talk show hosts and Network Executives were put on display for all to idol.

Every presentation spoke to which audience the network dominated (or plan to dominate).  Men to women, general market to Hispanic, working class to affluent every audience appeared to have a network that was prepared to own their ratings.   Each network promised content by day and daypart (AM to late night) that was sure to dominate drama night, comedy or reality.

This brings me to your brands reality.  At the up-fronts network executives had to pitch their programming, their content and ultimately what their network was all about.  The hope was different corporate brands would see the parallels between themselves and networks and conclude- “CBS is the network for my company!”  Based on who they both dominate, when they dominate and what they stand for it should be obvious how brands and networks align.

THE FANTASY:

What if the roles were reversed between your company and the Networks?  Imagine a fantasy state where all the Networks showed up to NY to hear each of the Fortune 500 brands CEO come on stage and say “welcome to the (insert your company name here) upfront”.  Imagine if Networks had so few commercial slots and so many advertisers they were in the driver’s seat.  What if you and your executives had to sell your company to the Networks to get air time?  If successful your company would be allowed to air your messages on desired programming.  Otherwise, your messages would be shut out.  Talk about Reality TV!  How would your brand win and stand out?

THE REALITY:                                                                                Eli Manning (CBS Upfronts)

First your brand would have to have a very clear consumer strategy that appealed to the Network executives.  Who do you really want to dominate demographically?  Psycho-graphically?  Attitudinally?  When do you want to engage and why?  AM, evening or late night?  The basics will have to be covered as table stakes in the minds of the Network brass.  Many marketers’ at this point are exhaling a big “duh” right at this point.  Customer segmentation is a basic.  However to the picky Network President they will ultimately check all the basic boxes and still seek the answer- “why should I select your brand to advertise in my #1 hit show that has limited advertising slots?” The answer ultimately will be found in your brands purpose.

PURPOSE:

Your brand’s purpose is simply why the brand should exist to the customer?  An insurance company’s purpose may be to provide “peace of mind that anything gone wrong will be made right immediately”.   It would organize them to have 24 hr call phone support, fast dispatch of a claim team, counselors on hand for crisis management.  Do all of these programs have a measurable ROI?  Hard to say individually if they each have a payout.  However your brands purpose leads itself to your company’s overall ROI.  It provides your marketing to work harder because it has something meaningful to message.  It provides a reason to desire your company as a consumer.  It provides an easy way to validate initiatives on your white board should be in or out by simply asking, “Does this program pay off on our companies purpose?” 

In Adage a popular search engine’s purpose was cited to be “to satisfy every curiosity”.  Makes sense because anyone searching on Google is on a quest for knowledge.  A retailer’s purpose may be to allow people a “higher standard of living through lower prices”.  These are not advertising language, its internal language.  It’s how you organize your company internally as well as marketing.  However a purpose comes with responsibility which could extend beyond marketing.  PR, corporate relations, employee training and scope of your business could all be impacted.  In short your purpose is a key cog in your strategy.  In this "pretend" retailers purpose they may strategically forgo investing real-estate in affluent neighborhoods- a decision they may not have made without a purpose.

Let’s stay with the purpose of “higher standard of living through lower prices” as it is a popular one with several retailers.  The products the retailer buys to re-sell must be able to meet the purpose, the companies cost structure must be able to support the purpose.  Perhaps buyers at this retailer call vendors collect to save on their phone bill to reduce their cost structure even more (don’t laugh I have heard tell of this very action at the big W).  Only when a company truly rally’s behind the big idea will the advertising actually ring true to the customer.  The invitation will match the party and the “cumulative” effect will take hold.  Your purpose is genuine!

If you asked ten people “what do you think Wal-Mart stands for?”  You probably would get the majority of them answering something having to do with low prices.  Like their purpose or not they have one and their company rally’s around that idea.  A network executive who dominates the struggling middle class may have determined that Wal-Mart is a brand they would want on their network.  HGTV may have desired Home Depot.  ESPN may have determined Dick’s Sporting Goods were for them.  CNN may have determined Viagra has a place on their Network- but I won’t get into that.

 CHALLENGE:

After you determine who your customer segment is or should be, ask yourself the question you should have considered beforehand.  What’s your brands purpose?  Why should your brand exist on the competitive landscape (consumer facing)?  Blockbuster’s purpose should have been all about delivering video entertainment for those who seek to be entertained- not video or DVD rentals.  With the right purpose, where ever entertainment was happening Blockbuster’s R&D should have been there.  From the red carpet to your living rooms carpet entertainment has no boundaries so why should Block Buster confined themselves?  Reinvention of how your company pays off their purpose is the strategic plan not reinventing your purpose every year.  A purpose strategy would not only have won over the Networks CEO’s in this fantasy example but will win you customers today in reality.  Ask yourself now- “what is my company’s customer facing purpose?”  Many don’t have one and wonder why they struggle. 

Please share your company’s purpose or lack of one and comment!

The Super Bowl Reveals a Lesson in Loyalty Programs

(Who will you be loyal too?)

It’s that time of year where being indecisive is not acceptable.  People across America every NFL Championship weekend flock to parties, bars or their own living rooms often routing for a team that they haven’t routed for all year.  In fact check out your own party where guests are not even fans of the game but found some trivial reason to cheer for a team because of who the quarterback’s wife is or the color of their uniforms.   

People want to have a point of view.  They want to have a protagonist and an antagonist.  Every good book or movie has some of the base components to sway reader or viewer to a side.  A good story can make you route for an unlikely person or villain depending on the lens it is told through.  It’s the basic human social trait that compels us to pick a side.  In business we look to marketers to help harness the human trait and compel behavior to have the masses adore and frequent our brands.  This is often achieved through loyalty programs which is often seen as a “must have” part of many consumer facing businesses and often is a culprit in eroding profitability and not achieving the behavior change desired in the first place.

WINNING IN INDIFFERENCE IS THE KEY

If loyalty programs are about changing behavior it needs to often be reminded to do it in a profitable way.  I often determine when to have a loyalty program with three simple rules:

Let's tackle each scenario starting when to avoid loyalty programs.

DISLIKE FOR YOUR BRAND:

Assume consumers had a large amount of dislike for a brand.  They were not “indifferent” to it but preferred to avoid it.  In fact, in some cases the consumer was what we call a "negative Nancy".  In other cases there was no emotional hatred by the customer for the brand they just preferred not to buy it.  Offering loyalty to something consumers say they don’t like will NOT make them like it more.  So loyalty programs often won’t work and erode profitability.  Example:

Let’s assume at one time McDonald's had an issue with the health conscious consumer.  Fast food in general does have this issue but Subway Fast Food  became known for having smart eating choices and a spokesperson that was once 400lbs now at a normal weight attributing the life change to his favorite fast food chain.  Should McDonald’s have given extra Big Mac Points for every Big Mac sold?  No!  The marketers at McDonald's were too smart for that.  In order for McDonald's to move the needle with the health conscious eater they had to do something much more fundamental to gain their loyalty- change the menu.  Adding salads and oatmeal as choices vs. hamburgers and breakfast sandwiches enables McDonald's to compete for the loyalty of that consumer.

LOVE FOR YOUR BRAND:

Jumping to the opposite side of the equation if the public by in large loves your brand you may not want to provide a loyalty program.  Remember if it is about behavior change (more trips, larger basket etc.) and you already have a loyal following there may not be enough room for significant consumer change.  Let’s have fun with coffee.

Assume you had a coffee shop by your house that you loved like a Starbucks.  Every morning the line is packed and on weekends etc…  You see a lot of the same people in the shop and cars in the drive thru.  Assume Starbucks thought that 50% of their customers at this location were regulars.  In order to try and spike sales it was decided to give away a free coffee to every 5^th purchase.  Sounds good doesn’t it? 

Problem is on 50% of their sales they are now giving away a free "cup of Joe" every fifth transaction.  Since that regular customer really couldn’t come in much more than they often do this leads to a 20% decline in revenue and profits (giving away one cup of coffee free every fifth time).  It would take the other 50% of the customers to have to come in 20% more often just to break even!  In my career a 20% lift would be pretty remarkable.  In this case it would be pretty risky.

Starbucks found a way to make customers loyal through a great experience, great product and great people.  Think for yourself the level of customer service differences between the two establishments we discussed (Starbucks and McDonald's).  Clearly different.  This allows Starbucks to command a premium for their products like a $5 Vente coffee (but they need that premium to maintain that experience) and McDonald's has less room to command a premium but their promise of "easy simple enjoyment" is more founded around consistency with food, service etc.  Neither model is wrong just different.  However in both cases loyalty programs (ex points programs or free give away) are probably not needed, prudent or necessary.

INDIFFERENCE FOR YOUR BRAND:

Indifference is the battleground for loyalty programs.  Think about airlines.  A person who just started becoming a regular flyer with no restrictions of airlines was faced one day with a flight to New York and could choose United or American Airlines.  For no real particular reason other than flight timing she chose American.  After the trip she earned several thousand miles because she was signed up for a frequent flyer card at the airport.  The next time she flew she was still just as indifferent as before but now she was 2,000 miles closer to her free ticket so she chose American again because there was no real compelling reason to change airlines from a price, destination or timing need.  The more she travels the more she is locked in on getting that free ticket and loyalty becomes apparent where there was none before.

Similarly let’s say “Bill” gets his oil changed at Jiffy Lube ever three months.  Oil changes are low emotional purchases based on convenience and price.  Recently a Metro-Lube opened near Bill.  Both businesses are very similar in all ways to Bill's perspective.  So he often began to flock to the place that had the shortest line when he had his oil changed.  This was fine until Metro Lube convinced Bill to join their loyalty program.  Now Bill gets his car vacuumed out for free and upgraded to better oil.  Perhaps Bill gets a free oil change every 4^th time in.  So now Bill actually is waiting in a longer line than the Jiffy Lube across the street because he has a vested interest to pick a side.  This investment may be good for Metro-Lube if they saw a lot of indifference and the majority of their customers were not really "regulars" even if they had their oil changed at Metro-Lube before.

WRAPPING IT UP

The battle field is finding your indifference and then break that tie with a loyalty program!  Some brands are so poorly positioned they actually need to move up to indifference.  Example a long time ago Montgomery Ward may have lost apparel customers because of new off mall retailers who had better fashion cache.  People may have slowed down purchasing at Ward’s because they started to feel the brand was like Oldsmobile (offered low badging).  Perhaps it was convenience or one of any number of issues that hurt the company.  The point is Montgomery Wards probably could not have saved themselves through a points program but rather they needed to “fix their menu” like McDonald's did.  Address what consumers disliked so to reach a point of indifference and then work on a loyalty program.  If she sees no difference in JCP or Kohl’s than she will ebb and flow to both outlets but if she dislikes one of those brands more points will not provoke her to shop there.

So look around the next time you are at a football party or bar for a big game.  Look at how many people are NOT pulling for one team or another.  Most people have a point of view at game time and a team they are pulling for.  However in everyday life many consumers are caught in the land of indifference waiting for you to harness it, wanting you to choose a jersey for them and give them the comfort of a point of view!

I put it to you.  What brands have your loyalty and do they have a loyalty program?

MarketingGr8nes

An Aspiration Not a Declaration