Bought Loyalty vs. Earned Loyalty

Acquiring new customers is hard work, but turning them into loyal customers is even harder. The acquisition efforts can usually come almost solely from the Marketing department, but customer retention takes a village. And all those villagers have to march to the beat of a strategy that effectively balances the concepts of bought loyalty and earned loyalty.

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?

Beyond the Buy Button: The Huge Additional Value of Retail Websites

Sometimes, I think we focus so intensely on the e-commerce sales of our sites that we miss the overwhelming additional value they bring to our businesses. Retail websites, particularly for multi-channel retailers, are more multi-dimensional than any other channel and any other brand vehicle. We fail to recognize the value of these sites beyond the buy button at our own peril.

Some are starting to see the additional value. During her presentation at the Retail Innovation and Marketing conference in San Francisco last week, Express Chief Marketing Officer Lisa Gavales talked about her epiphany surrounding Express.com’s value to the brand. It was Express.com’s traffic numbers that sparked the light bulb in her head. She realized that Express.com got as much traffic in a week as all of the Express stores combined. In other words, half of Express brand interactions were occurring on Express.com. Lisa immediately understood the marketing value of such high levels of engagements from Express’ customers. So much so, in fact, that she came to a conclusion she deemed controversial during her presentation — Express.com should be a marketing vehicle first and a direct sales channel second.

After the presentation, my good friend Scott Silverman, Shop.org’s Executive Director, asked me if I agreed with Lisa’s positioning of Express.com. I rambled on a bit before essentially saying “yes and no.” I’ll now take this space for what I hope is a more coherent answer.

I completely agree with Lisa that retail websites are much more valuable to the overall business than their direct sales indicate. Applying resources and strategic importance to sites based only on their percentage of sales is a mistake that could prove very costly in the long run. Customers use our sites for many reasons beyond direct transactions and our failure to highly prioritize those intentions is a disservice to our customers that will affect our bottom lines. But the value of our sites goes well beyond just marketing and direct sales and simply switching priorities is not enough. Furthermore, I worry that prioritizing marketing higher than everything else will lead to the types of conversion problems I previously discussed in my post “Conversion tip: Don’t block the product with window signs.”

Let’s consider some of the many values a retail website provides for a multi-channel retailer:

• Marketing vehicle
  As Lisa noted, the marketing value of our websites is immense. We are getting tons of traffic, and each engagement is an opportunity to enhance our brands. (Of course, if we’re not careful, the opposite is also true.) Websites are a highly efficient way to strengthen the Customer Engagement Cycle. Both online and offline marketing vehicles can direct customers to our sites to further enhance our messages. Our sites are also a great way to tell people about our stores on both a collective and an individual level.
• Merchandising vehicle
  Customers come in droves to our sites to learn more about the products we sell, whether they intend to buy online, over the phone or in our stores. Our sites have to essentially be our best and most knowledgeable merchants. They have to lead customers to the right products for them and provide the right information for them to make a selection, regardless of the channel where the purchase takes place.  This is a huge, often untapped, opportunity for quality merchants to reach their customers and sell them the right products.
• Customer research tool
  This is a bit of a double entendre. As mentioned above, our customers are certainly using our sites for their research. But we can also use our sites to learn more about our customers. There is a wealth of information to be had about what our customers are doing and what they desire. Not only can we see what they purchase, but we can also use web analytics to see what they look at. With tools like those provided by ForeSee Results (shameless plug), we can also know what they are thinking, what they are intending to do, and how they are perceiving our brands. All of this can be done fairly easily and inexpensively in ways that are either impossible or impossibly expensive in the physical world.
• Customer relationship enabler
  We can continue to build relationships with our customers by applying what we’ve learned above to give them better experiences. The applied knowledge of our merchants combined with the long-lasting memory of our websites should allow us to constantly serve our customers better. As we focus on building those relationships with more personalized site experiences, more informed personal interactions via contact centers and in-store, and more relevant email and direct mail communications, we will build stronger loyalty with our customers.
• Community builder
  Websites also give us ways to connect our customers with each other. Our brands can act as a central hub for like-minded customers to find each other and help each other find products that meet their needs or solve their problems. How great is that? We can make these connections both via our own sites and via social networks like Facebook. Either way, it’s another way for our brands to provide services for our customers. Our sites can also allow our brands to be more localized by providing additional vehicles for our stores to connect with their communities.
• Sales driver — in-store and online
  And, of course, we can sell stuff. We can sell lots and lots of stuff online. Our sites are still not where they need to be for maximum usability, so we have plenty of opportunities to improve their ability to sell directly. But we also have lots and lots of opportunity to drive traffic into our stores. We can show inventory; we can let people buy or reserve online and pick up in-store; we can host coupons;  we can help people find a store close to them; we can provide reviews and recommendations to people standing in our stores (whether via kiosks or mobile phones). The possibilities are endless.

These site values are not mutually exclusive. Their value in combination is exponentially higher than any one individual value. Therefore, it’s critically important to consider our sites holistically when determining their place and priority in our strategic plans. We need to consider their combined value when we determine allocation of resources and organizational structure.

Too often, though, resources and executive attention are not apportioned to the site according to this additional value. And we often don’t even measure these additional value points (which might explain the lack of resources and executive attention). If our most important measures of our sites revolve solely around direct sales, we will continue to minimize the importance of all other values of our sites.

I believe the multichannel retailers with the brightest futures in this new decade will be those who fully embrace and leverage the multi-dimensional value of their websites.

What do you think? How is your site valued in your organization? What retailers do you think are most recognizing the additional value of their sites?

3 steps to a more effective retail Facebook presence

Amidst the many clouds of uncertainty surrounding retail use of social media, a few key strategies are starting to emerge. Three recent studies, including a white paper written by yours truly, have examined customer interactions with retailers via social media. Encouragingly, all three studies (Emarketer recently summarized the findings from studies by Marketing Sherpa and Razorfish) have very similar findings regarding customer desires in their social media interactions with retailers.

While the percentages varied slightly, all three studies found customers who “friended” or followed retailers said they were interested primarily in learning about new products and new or exclusive promotions. How great is that? I have to admit I was a bit surprised to see these results because it seems like current conventional wisdom says to avoid being promotional on sites like Facebook in deference to its more personal nature. In hindsight, that conventional wisdom seems a little questionable since it’s unlikely customers are going to interact with retailers like their friends. They know we’re about selling to them — we’re retailers!

More good news: It appears that the customers who follow retailers are really the best, most engaged and brand committed customers for those retailers. I suppose that’s not terribly surprising, but it’s certainly valuable information. Since our findings were part of a larger customer satisfaction study, we were also able to determine that site visitors who also interact with a company on a social media site are more satisfied, more committed to the brand, and more likely to make future purchases from that company than customers who don’t follow those retailers. Our study also found that 61% of people who follow retailers follow less than five retailers. That’s further  indication that people are really focused on their absolute favorite retailers.

We also found that more than 80% of shoppers who use social media list Facebook as a site they use regularly, which makes it the overwhelming social media leader. YouTube came in second place with only 31% of shoppers.

So, to summarize, our best and most engaged customers like to interact with us on Facebook (an incredibly viral platform) and want to hear about new products and promotions. This is a great foundation for a successful strategy!

Without further ado, here are three steps to a more effective retail Facebook presence:

1. Focus on best customers
   Rather than trying to build our fan base to the highest possible numbers, let’s focus on getting as many of our highest value customers as fans on Facebook. They’re the most likely to become our Facebook fans anyway, but they’re also the most likely to recommend us to their friends. Facebook’s viral nature gives us the opportunity to put our Word of Mouth Marketing on steroids, and developing messages for our best customers gives us a clear focus. We should reach out directly to our best customers via targeted messaged and encourage them to join because we…
2. Give ‘em special promotions and news about products
   These are our best customers. Let’s treat them well and make them feel special. Let’s give them exclusive offers and early notice on cool new products.  Victoria’s Secret does an excellent job here, and it shows. Of the Internet Retailer Top 40 retailers’ Facebook pages I looked at, Victoria’s Secret has by far the most fans at almost 2.7 million at the time of this writing. Clearly, they are delivering on customer expectations, and they’re being rewarded for it by attracting lots of really engaged customers.

   My good friend Adam Cohen, partner and social media lead at Rosetta and blogger at a thousand cuts, (and my go-to guy on all things social media) correctly cautions against too many rich, exclusive promotions as they could be unsustainable as the fan base grows. This is particularly true if the offers start to attract deal seekers who are not our best customers. Good warning from Adam and in line with the excellent old adage “everything in moderation.”

3. Leverage Facebook viral features
   We’re giving great, exclusive offers and product news to our best customers. Those best customers are the most likely to recommend us to their friends. Let’s encourage them to do so. It could be as simple as letting them know an exclusive offer can be shared with their friends by simply hitting the “share” link.  There are lots of Facebook applications and other techniques that can be used, but I would personally just start simply and go from there.

(Bonus tip) Make sure your page can be found in Facebook search.
This isn’t really one of my key steps, but during my research I was surprised by how poor Facebook’s search is. For example, I searched for “LL Bean” and found nothing. Then I tried “L.L. Bean” and again got nothing. Their page is actually entitled “L.L.Bean” with no space between “L.” and “Bean.” Facebook’s search will only find it if you search for it exactly as it’s titled.  So, my tip is think about how people might search for your brand and then name the page with the most common search term.

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Three separate studies have all found that customers who friend or follow retailers in social media are most interested in learning about promotions and new products. That’s some mighty strong corroboration, and it’s incredibly great news. Judging from the large percentage of retailers with little-to-no Facebook presence, I’m guessing many have been holding pat waiting for a clear direction on how to best leverage social media. While this information may not give the clearest direction for all social media channels, it certainly provides some clarity on today’s biggest channel, Facebook. Different social media channels require different strategies and tactics, and in the end it’s still important to learn more from our customers about their specific needs and desires and then work to satisfy them.

In the meantime, let’s build some really great Facebook pages for our best customers and give them some exclusive offers to enjoy. Please let me know when you’ve got your page running so I can become a fan!

What do you think? What have you learned about Facebook? What tips do you have?

You ARE a technology company

In this day and age, pretty much every company is heavily dependent on technology to operate. But if you have an e-commerce operation (or really any sort of transaction website), you are a consumer technology company. The sooner we recognize and accept this fact, the sooner we can get on with leveraging it to our competitive advantage.

We often talk about focusing on our “core businesses” at the expense of everything else. At a conference I attended last week, I heard a number of speakers and attendees reference Amazon as a “technology company” as sort of a dismissal. They were basically saying, “Yes, Amazon has lots of great features and functionality and people rate their experience highly, but they’re a technology company. We’re retailers. We can’t compete on that level with them.” This type of statement draws the obvious retort: “So, then, on what level do you plan to compete?”

While Amazon does generate some revenue from selling technology services, the vast majority of their revenue comes from retailing products. Their financial statements look pretty much the same as most retailers (except they have much bigger numbers and growth rates). But Amazon and other pure play online retailers are not burdened with the type of legacy thinking that exists in a lot of multichannel retailers. They understand full well the value of creating a quality online experience, and they understand that technology is part of their core business.

Competing with Amazon is clearly very difficult for a variety of reasons (price being high on the list), but how many business elements can we abdicate to them before our very survival is at stake? Shifting our mindsets regarding our sites is one key way to claw back into the game.

Our websites are consumer software applications, in many ways like Microsoft Word or Quicken. And this means that online our business is technology.

People use our website applications to accomplish tasks like buying our products, learning more about our products or getting inspiration. Their perceptions about the quality of our applications can absolutely make the difference in whether or not they complete their tasks and whether or not they return to use our applications again.

And their perceptions of our brand can also be influenced by the quality of our site experiences. A study by ForeSee Results on the Internet Retailer Top 100 sites found that people who were satisfied with the online experience of a retailer were 44% more likely to purchase offline. That indicates significant value in making sure the website is a quality software experience.

Our websites are also an opportunity to differentiate from our competitors, particularly if we’re not selling proprietary products. If consumers can buy the same North Face jacket or Nikon camera from a variety of different retailers online, the quality of the online experience will be a contributing factor in the decision.

Let’s do what it takes to include the quality of our site experience in our value proposition.

Here are 3 ways to get started towards becoming a consumer technology company:

1. Organization
   We will likely need to make organizational structure changes to support a consumer technology focus. I previously made a case for changes in E-commerce IT organization that goes into more detail, but suffice to say the technology strategy and the business strategy need to be not only aligned, but integrated.

   Furthermore, we need think about different types of roles. Software companies have product — not project — managers and product teams who are dedicated to building customer focused product strategies and life cycles. A quick check on the Amazon careers page reveals many product management positions. Do you have product management positions in your organization?

   Check out a typical set of responsibilities from Amazon’s Baby Registry product management gig and note the mix of business and technology functions and responsibilities:

   • Research and identify opportunities for Amazon to further distinguish our Baby Registry offering.
   • Define a long-term product roadmap, including technical, business development and marketing initiatives.
   • Develop new strategic partnerships ad drive day-to-day partner relationships.
   • Conduct business and financial analysis, including forecasting, monitoring, and reporting.
   • Define requirements, and drive customer experience projects and work with all relevant cross-functional areas and our technology teams to guarantee smooth, efficient implementation.
   • Manage bottlenecks, provide escalation management, anticipate and make trade-offs, balance the business needs versus technical constraints, and maximize business benefit while building great customer experiences
   • Work cross-functionally with designers, software development engineers, salespeople, product managers, and other internal partners.

2. Budget/Investment
   How might our current budgets change if we considered ourselves  technology companies? Maybe not at all, but we should nonetheless re-examine our customer investment strategy in such a light. At the very least, we might consider revamping our budget processes to accommodate a fast moving, highly innovative competitive marketplace where the features and functionality of our website “product” are key parts of our business strategy and our ability to differentiate from our competitors.
3. In house or outsource?
   Often we decide to outsource technology (and other elements of our businesses) because they are not “core” to our business and other people can do a better and more cost effective job. How does our thinking on outsourcing change if we consider ourselves technology companies? We might still legitimately consider outsourcing or licensing third party software, as many software companies do. However, we might also consider building up true competencies in at least some areas of software design and development because of the need to differentiate and deliver quality branded experiences for our customers.

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Recognizing and accepting the fact that developing an e-commerce operation puts us in the consumer technology business is an important first step to successfully competing in the online marketplace. Once we’ve achieved the consumer technology mindset, we’ve got to take steps to create an organizational structure that executes like a consumer technology company. Without such steps, we will fall further and further behind the companies who are leveraging their technology focus to create the positive customer engagement cycles I discussed in my previous post.

What do you think? Do you think being in e-commerce means you’re in the in consumer technology business? How is your company organized?

Photo credit: Sebastian Bergmann

“If it ain’t broke, you ain’t looking hard enough”

The poor economy has done nothing to lower customer expectations of online retailers, and recent mixed results data from ComScore and ForeSee Results indicate that retailers who continue to improve their customer experiences are pulling away from their competitors in both sales and customer satisfaction.

ComScore reports online retail up 4% for the holiday season. While an increase is always nice, this is a much lower growth rate than online retail has seen in the past. And last year’s comparison base was far from stellar. ForeSee Results shows a significant drop in customer satisfaction year over year. Since satisfaction is predictive of future financial results, a drop is concerning.

But still, I wondered how sales could be up at all if satisfaction was so far down.

A deeper look at the ComScore data shows the Top 25 retailers growing 13% while “Small and Mid Tail” retailers are declining 10%. Satisfaction scores are also split, but the differences we’re seeing seem to be more based on those retailers who are continually improving their sites versus those whose cost containment measures have slowed or stopped improvements. It appears that the retailers who closely measure the effectiveness of their sites from their customers’ perspectives and continuously improve their customers’ experiences are the retailers with increasing customer satisfaction scores. Those retailers who didn’t improve customer experience this year are suffering declining satisfaction scores. Many of those in the Top 25 are the retailers who have continued to enhance their customer experiences. Those enhancements are not only helping them to increase their sales, but because of the high visibility and usage of those tops sites, they’re also raising consumer expectations of all sites.

Customer satisfaction can be best defined as the degree to which a customer’s actual experience meets his or her expectations. Therefore, rising expectations can depress satisfaction scores if customer experience improvements don’t keep pace.

In the rapidly changing world of online retail, stopping or delaying improvements is like treading water in a swimming race. While you may temporarily save some energy, you will fall hopelessly behind and your only hope of catching up is spending a lot more energy than you likely saved treading water

Growing online retail businesses realize and fully embrace the need for continuous improvements, and they also realize that online retail in general is far from producing the level of customer experience truly necessary to provide excellent self-service shopping experiences. I recently heard Robin Terrell, Managing Director of John Lewis Direct in the UK (and Amazon alum), say “If it ain’t broke, you ain’t looking hard enough” in a talk about the need to improve customer experience. It’s a brilliant statement, and I totally agree with what he was saying.

So, “improving customer experience” is a huge and vague statement. Where do we start?

1. Recognize that it’s broke and you ain’t looking hard enough
   We’re still in our infancy in online retail, and we’ve got a long way to go. We too often try to increase our sales by generating more traffic and don’t spend enough time converting the traffic we’re already got. Often, the obstacles to conversion are not the big, shiny, whiz bang functionality; they’re lots of little things that add up to big problems. Those problems are hard to see without a concerted effort, as I discussed in more detail in my Tree Stump Theory post and other posts on conversion.
2. Truly learn how effective your site is from your customers’ perspective
   We can all identify lots of improvements we’d like to see on our sites, but it’s the improvements our customers most need that will drive our best growth. So understanding where we are and aren’t effective from our customers’ perspectives is critically important, but difficult.Focus groups and usability labs can be very helpful, but they can’t be our first or only methodology because it’s not possible to project learnings from a small group of people onto our entire population of customers.

   First, we need to quantitatively understand our effectiveness in the eyes of our total population, and that requires a statistically solid customer polling and analysis capability. Blatant and shameless plug alert: I’ve had great success using ForeSee Results in the past for exactly this purpose. Once we understand problem areas at a macro level, we can add a lot of color by interacting directly with customers in focus groups and usability labs. More details on this process can be found in my post entitled “Is elitism the source of poor usability?”

3. Consider getting some help from usability professionals
   Usability audits are different from usability labs. Usability auditors are professionally trained to understand how people interact with websites. Many of them have degrees in Human-Computer Interaction, a field that truly seeks to understand how people interact with software. These types of people can really help to identify problems with our user interfaces that untrained eyes have trouble seeing but which regularly obstruct customers from accomplishing their tasks.
4. Put in place a process to continuously improve
   This is really about budgetary and project management mindset. We must just accept the fact that we can’t tread water in a never-ending swimming race, and our only chance of competing is to keep swimming. We have to build our staffs, our budgets and our processes with the recognition that competing in the marketplace means continuously improving our customer experiences. Which leads to …
5. Wash, rinse, repeat
   Since the leaders in the marketplace are running this same cycle, we cannot rest. We must continue to recognize our sites are broken, continue to measure our effectiveness from our customers’ perspectives, find problems, fix them and begin again.

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We’ve got a lot of data that shows that retailers who best satisfy their customers generate the best financial results. I suppose that statement doesn’t sound like rocket science. But understanding that satisfaction has a direct relation to expectations and that our customers’ expectations can change independent of what we do on our own site is important. The leaders are continuously improving their sites, and they’re improvements are raising our customers’ expectations. We’ve all got to swim harder to keep pace.

What do you think? What’s your view on the marketplace? How have you see customer satisfaction affect your business?