I first heard the concepts of bought and earned loyalty many years ago in a speech given by ForeSee Results CEO Larry Freed, and those concepts stuck with me.  They’re not mutually exclusive. In the most effective retention strategies I’ve seen, bought loyalty is a subset of a larger earned loyalty strategy.

So let’s break each down a bit and discuss how they work together.

Bought loyalty basically comes in the form of promotional discounts. We temporarily reduce prices in the form of sales or coupons in order to induce customers to shop with us right away.

Bought loyalty has lots of positives. It’s generally very effective at increasing top line sales immediately (especially in down economies), and customers love a good deal. It’s also pretty easy to measure the improvement in sales during a short promotional period, and sales growth feels good. Really good.

And those good feelings are mighty addictive.

But as with most addictions, the negative effects tend to sneak up on us and punch us in the face. The 10% quarterly offers become 15% monthly offers and then 20% weekly offers as customers wait for better and better deals before they shop. Top line sales continue to grow only at the cost of steadily reduced margins. Breaking the habit comes with a lot of pain as customers trained to wait for discounts simply stop shopping. Bought loyalty, by itself,  is fickle.

But it doesn’t have to go down that way.

We can avoid a bought loyalty slippery slope when we incorporate bought loyalty tactics as part of a larger earned loyalty strategy.

We earn our customers’ loyalty when we meet not only their wants but their needs. After all, retail is a service business. We have to learn a lot about our customers to know what those wants and needs are so that we align our offerings to meet those wants and needs. Which, of course, is easy to say and much more difficult to do. But do it we must.

To earn loyalty, we have to provide great service and convenience for our customers. But we have to know how our customers define “great service” and “convenience” and ensure we’re delivering to those definitions. Earning loyalty means offering relevant assortments and personalized messaging, but it’s only by truly understanding our customers that we can know what “relevant” and “personalized” mean to them. And a little bit of bought loyalty through truly valuable promotions can provide an occasional kick start, but we have to know what “valuable promotion” means to our customers.

We earn loyalty when the experience we provide our customers meets or even exceeds their expectations. As such, our earned loyalty retention strategies have to start before we’ve even acquired the customer. If we over-promise and under-deliver, we significantly reduce our ability to retain customers, much less move them through the Customer Engagement Cycle we’ve discussed here previously.

But earned loyalty can’t just be the outcome of a marketing campaign. It’s much bigger than that, and it doesn’t happen without the participation of the entire organization. Clearly, front line staff in stores, call center agents and those who create the online customer experience have to be on board. But so too do corporate staff, including merchants for assortment and marketers for messaging. And financial models for earned loyalty strategies inevitably look different than those built solely for bought loyalty.

Since customer expectations are in constant flux, we have to constantly measure how well we’re doing in their eyes. Those measures must be Key Performance Indicators held in as high a regard as revenue, margins, average order size and conversion rates. (Shameless plug: the best way I know to measure customer experience and satisfaction is the ACSI methodology provided by ForeSee Results). Our customers’ perceptions of our business are reality, and measuring and monitoring those perceptions to determine what’s working and what’s not is the best way to determining a path towards earning loyalty.

Earning loyalty requires clear vision, careful planning, a little bought loyalty, lots and lots of communication (both internally and externally), and some degree of patience to wait for its value to take hold. But when the full power of an earned loyalty Customer Engagement Cycle kicks in, its effects can be mighty. The costs of acquiring and retaining customers drop while sales and margins rise. That’s a nice equation.

What do you think? Have you seen effective retention strategies that build on both bought and earned loyalty? Or do you think is all just a crock?

Convenience. We value it more than I think we sometimes realize. We’re willing to pay more for it, and we’re willing to sacrifice quality in exchange for it. So it stands to reason that delivering convenience for our customers can lead to a pretty profitable equation for retailers.

Consider the convenience effect of some of the more popular innovations in recent years:

• Mobile phones. We love our mobile phones,  even though they’re more expensive and of significantly lesser sound quality and reliability than land lines. And now we browse the web on our tiny smartphone screens.
• Digital music. While it’s getting better, the sound quality of digital music is not as good as CDs (and some people say CDs aren’t as good as LPs). And we happily listen to our iPods over poor sound quality earbuds because they’re a lot more convenient than bulky headphones.
• Camera phones. Digital photography with nice SLR cameras is finally nearing the quality of film, but cameras on phones have a long way to go to get to that same level of quality. But it sure is easy to post photos on Facebook and Flickr from a camera phone.
• Diet pills.  OK, these aren’t as widely adopted as the previous examples (yet), but they’re the easy way out for weight loss even though there are some less-than-pleasant side effects. (Hint, you don’t want to sit next to an Alli pill taker on a long flight.) Of course, if you’re not into pills maybe you can still avoid exercise and get some six-pack abs with the Vibro-Belt.

I would be remiss if I didn’t mention the immense convenience of e-commerce and the effect it’s had on retail. But we cannot rest on our laurels as the desire and demand for convenience knows no bounds.

The threshold for inconvenience continues to get ever lower. We often complain about how many clicks it takes to get to what we’re looking for on a web page. Think about that for a moment. The energy required to cause our index fingers to press a button too many times is irritating. Some might say it’s not the energy, it’s the time. OK, fair enough.  Then the “waste of time” threshold starts kicking in when we are forced to wait three to four seconds for a page to load. We’re busy! We haven’t got that kind of time to waste!

My favorite example of the power of convenience is the Kindle. Amazon managed to make the paper book seem inconvenient. If that doesn’t tell you that just about everything can be made easier, I don’t know what will. People (and I’m one of the them) are willing to drop hundreds of dollars for a book reading device that still doesn’t format as well as a paper book. But it’s so light and so much easier to hold in one hand than a hardcover book. You can lay it flat on the table. You can carry lots of books around easily, which is very nice for a traveler like me. And you can get books in an instant with the wireless connection, which is soooo much more convenient than plugging the device into a PC for a sync. I sometimes feel ridiculous saying things like that, but I’m not going back.  And I’m not alone; people write long blog posts professing their love of the convenience the Kindle brings.

But this post isn’t a social commentary. It’s about recognizing an opportunity to make money.

So, how can we focus our businesses on the convenience opportunity? Here are three places to start:

1. Start with website usability
   We should start with our sites because they are the low hanging fruit. The promise of convenience with e-commerce is high, but all too often we put obstacles in our customers’ way, many of which I’ve written about previously. Where are we causing customers more clicks than necessary? Why are we requiring all those clicks? Is it a lack of planning on our part, or are we putting our immediate priorities ahead of our customers’ needs? Have we overwhelmed our customers with choice? How can we make narrowing our selection easier and quicker? And let’s not forget site performance. How fast are those pages loading?
2. Re-examine the store experience
   We need to continue to think about how our in-store experiences can be easier and more convenient for our customers to shop. Paco Underhill provided some great tips in his book,  Why We Buy. We can also look to a cross-channel strategy to allow technology to provide some conveniences. How can we bring customer reviews and recommendations into the store? Is “buy online pickup in-store” a desirable convenience to offer? How about accepting payment via mobile phone or PayPal in our stores?
3. Consider our customers’ lives – what could make those lives more convenient?
   What’s life like for our customers? If she is a busy mother of young children, can we do more to help her easily put together some nice outfits for the kids (or herself) to free up time for answering emails, paying bills, or maybe, just maybe, giving her time to relax in the bath? Does it make sense to give our customers the ability to automatically replenish certain items at certain intervals? If we think hard, we can probably find ways to improve certain tasks that don’t currently seem difficult. If the book can be made more convenient, there are no limits.

Sometimes I think we get so caught up in our metrics and the particulars of our businesses that we forget about our customers’ needs. After all, retail is really a service business. Customer convenience can and should be a key part of our value proposition. When we find ways to make our customers’ lives easier (even by just a little bit) we are providing services and products our customers will be willing to buy — and at prices that are nice for our bottom lines.

What do you think? Is customer convenience the right strategic target for us? What ideas have you implemented to improve convenience?

I’ll start with an easy one:

1. Just about everyone will be connected at high speeds at all times

Heck, we’re almost there now. Technologies like WiMax and its successors will be incredibly prevalent in 2024. Furthermore, screen size will no longer be an issue. Innovative technologies like OLED will allow for large foldable and rollable screens that can be neatly tucked into devices the size of ballpoint pens. But it won’t just be mobile devices that are connected. Our cars, our clothes, our sunglasses, our appliances and just about everything else will be connected. Everyone will have exactly the information they need at any given time immediately accessible at any point in time.

2. Video communications advances will make today’s office spaces almost extinct

This one is where I’ve met with the most dissent when I’ve discussed it with people. I think we’ll all have wall-sized screens in our homes that allow us to have life-sized video conversations with people, and that technology will allow us to telecommute in massive numbers. So many people will telecommute that offices as we know them today will no longer make sense. Our co-workers will be spread throughout the globe, yet our communications with them will come close to the same quality we have today with someone in the same office.

The normal argument I hear against this prediction is that nothing can take the place of the types of in-person conversations we have today. That may be true, but maybe we don’t need that level of quality for the vast majority of our office conversations. We’ve proven over and over throughout the years that we’ll trade quality for convenience. In communications alone, we’ve traded phone conversations for what used to be in-person conversations. We’ve also more recently traded the higher sound quality and reliability of land line phones for the lesser sound quality and lesser reliability of mobile phones. Texting has replaced email for many, and even instant messaging has frequently substituted for in-person conversations. I’ve seen people IM each other even though they’re sitting in directly adjacent cubicles where they could have easily just spoken in normal voice.

I’ve used current versions of video conferencing that are pretty impressive. I once attended a meeting at Google’s Ann Arbor office where we met with people in Google’s Mountain View office via video conference. After a couple of minutes adjustment, I felt like we were in the same room. We were even drawing on the white boards for each other.

This particular technological advance will also be driven by environmental concerns and continuously rising prices of fuel. The “world is flat” phenomenon may also be a significant contributing factor as companies will be able to leverage their use of these technologies to hire the best talent available regardless of physical location.

3. Supply chain advances will make same-day delivery commonplace

One of the most often cited advantages of physical retail over e-commerce is the immediate gratification available at a local store. This advantage will not hold for long. I can just about guarantee someone at Amazon is currently trying to find a way to deliver most of their goods to almost anyone in the same day. They’re actually already doing it for some items in some cities today. And they’re not alone. The auto parts retailers have long been able to deliver parts to commercial garages within an hour. In fact, I can imagine the types of distribution networks built by auto parts stores becoming a model for many retailers. Supply chain professionals are some of the most amazing people I’ve ever met.
They are constantly finding new efficiencies in their processes, and I have no doubt they will be able to solve the issues associated with same day delivery.

Do these predictions sound crazy?

If so, think back 15 years to 1994. Hardly anyone had mobile phones or emails. Amazon didn’t exist, nor for all practical purposes did e-commerce. Those of us who connected to the internet did so on dial-up modems at 56k speeds. We’ve come a long way in the last 15 years, and I don’t see any sign of us slowing down for the future.

So, what does this mean for retail?

Many of today’s current physical store advantages are going to be neutralized, so multi-channel retailers are going to have to significantly change their business models. Furthermore, the commonplace usage of video conferencing will likely cause population shifts and cause the need to shift real estate strategies. I can see some people migrating towards urban environments to satisfy their needs for more personal interaction in their social lives, and I can see others going the opposite direction and moving to rural environments to satisfy their needs for more solitude and outdoor living. Suburbs as we know them today will have less appeal and may see significant population decreases.

As I think is already the case today, the retailers who create the best customer experiences across all channels are best positioned to thrive in the future. As retail becomes increasingly self-service via customers’ constant connections to retailers and to each other and to general information everywhere, it’s going to be the retailers who get customers the right information in the right way at the right time and with the best overall customer experience who will garner the most loyalty among customers.

Retailers with physical stores may consider leveraging those physical stores as distribution warehouses while maintaining selling spaces that are in many ways showrooms. Retailers will need to consider whether or not distribution and delivery should be outsourced or become core capabilities. Will sales associates and delivery drivers become one in the same? Will sales assistance occur both via video conferencing and via direct discussion on a customer’s doorstep? Is that crazy from a customer’s perspective or incredibly convenient?

I believe the retailers who best leverage their cross-channel capabilities today will be best positioned for this brave new world. And those who attempt to protect the status quo will face pressures from all fronts.

There are lots of other things that could happen in the next 15 years that are potentially even more radical than anything I’ve predicted here. But one thing’s for sure: there can be no doubt the retail landscape 15 years from now will be very different from what we see today.

What do you think of my predictions? Even more importantly, what are your predictions? How do you think retailers should react?