Posts tagged: incentives

The Missing Links in the Customer Engagement Cycle

customer engagement cycleThe Customer Engagement Cycle plays a central role in many marketing strategies, but it’s not always defined in the same way. Probably the most commonly described stages are Awareness, Consideration, Inquiry, Purchase and Retention. In retail, we often think of the cycle as Awareness, Acquisition, Conversion, Retention. In either case, I think there are a couple of key stages that do not receive enough consideration given their critical ability to drive the cycle.

The missing links are Satisfaction and Referral.

Before discussing these missing links, let’s take a quick second to define the other stages:

Awareness: This is basic branding and positioning of the business. We certainly can’t progress people through the cycle before they’ve even heard of us.

Acquisition: I’ve always thought of this as getting someone into our doors or onto our site. It’s a major step, but it’s not yet profitable.

Conversion: This one is simply defined as making a sales. Woo hoo! It may or may not be a profitable sales on its own, but it’s still a significant stage in the cycle.

Retention: We get them to shop with us again. Excellent! Repeat sales tend to be more profitable and almost certainly have lower marketing costs than first purchases.

Now, let’s get to those Missing Links

In my experience, the key to a strong and active customer engagement cycle is a very satisfying customer experience. And while the Wikipedia article on Customer Engagement doesn’t mention Satisfaction as often as I would like, it does include this key statement: “Satisfaction is simply the foundation, and the minimum requirement, for a continuing relationship with customers.”

In fact, I think the quality of the customer experience is so important that I would actually inject it multiple times into the cycle: Awareness, Acquisition, Satisfaction, Conversion, Satisfaction, Retention, Satisfaction, Referral.

Of course, it’s possible to get through at least some of the stages of the cycle without an excellent customer experience. People will soldier through a bad experience if they want the product bad enough or if there’s an incredible price. But it’s going to be a lot harder to retain that type of customer and if you get a referral, it might not be the type of referral you want.

I wonder if Satisfaction and Referral are often left out of cycle strategies because they are the stages most out of marketers’ control.

A satisfying customer experience is not completely in the marketer’s control. For sure, marketing plays a role. A customer’s satisfaction can be defined as the degree to which her actual experience measures up to her expectations. Our marketing messages are all about expectations, so it’s important that we are compelling without over-hyping the experience. And certainly marketers can influence policy decisions, website designs, etc. to help drive better customer experiences.

In the end, though, the actual in-store or online experience will determine the strength of the customer engagement.

Everyone plays a part in the satisfaction stages. Merchants must ensure advertised product is in stock and well positioned. Store operators must ensure the stores are clean, the product is available on the sales floor and the staff are friendly, enthusiastic and helpful. The e-commerce team must ensure advertised products can be easily found, the site is performing well, product information in complete and useful,  and the products are shipped on time and in good condition.

We also have to ensure our incentives and metrics are supporting a quality customer experience, because the wrong metrics can incent the wrong behavior. For example, if we measure an online search engine marketing campaign by the number of visitors generated or even the total sales generated, we can absolutely end up going down the wrong path. We can buy tons of search terms that by their sheer volume will generate lots of traffic and some degree of increased sales. But if those search terms link to the home page or some other page that is largely irrelevant to the search term, the experience will be likely disappointing for the customer who clicked through.

In fact, I wrote a white paper a few months ago, Online Customer Acquisition: Quality Trumps Quantity, that delved into customer experience by acquisition source for the Top 100 Internet Retailers. We found that those who came via external search engines were among the least satisfied customers of those sites with the least likelihood to purchase and recommend. Not good. These low ratings could largely be attributed to the irrelevance of the landing pages from those search terms.

Satisfaction breeds Referral

Referrals or Recommendations are truly wonderful. As I wrote previously, the World’s Greatest Marketers are our best and most vocal customers. They are more credible than we’ll ever be, and the cost efficiencies of acquisition through referral are significantly better than our traditional methods of awareness and acquisition marketing. In my previously mentioned post, I discussed some ways to help customers along on the referral path. But, of course, customers can be pretty resourceful on their own.

We’ve all seen blog posts, Facebook posts or tweets about bad customer experiences. But plenty of positive public commentary can also be found.  Target’s and Gap’s Facebook walls have lots of customers expressing their love for those brands. Even more powerful are blog posts some customers write about their experiences.  I came across a post yesterday from entitled Tales of Perfection that related two excellent experiences the blogger had with Guitar Center and a burger joint called Arry’s. Both stories are highly compelling and speak to the excellent quality of the employees at each business. Nice!

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Developing a business strategy, not just a marketing strategy, around the customer engagement cycle can be extremely powerful. It requires the entire company to get on board to understand the value of maximizing the customer experience at every touch point with the customer, and it requires a set of incentives and metrics that fully support strengthening the cycle along the way.

What do you think? How do you think about the customer engagement cycle? How important do feel the customer experience is in strengthening the cycle? Or do you think this is all hogwash?


The Prizes and Perils of Free Shipping

Shipping charges. As customers, we HATE paying for them, and we LOVE getting them free. In fact, our feelings about shipping charges are so strong that we highly overvalue free shipping. We’ll spend money we didn’t plan to spend on products we don’t need in order to avoid dumping cash into those awful shipping fees, even when that incremental spending is much more than the shipping charge.

So, free shipping promotions are a powerful tool for retailers. But, if we’re not careful, overuse of free shipping offers could lead us down a path where free shipping becomes more an expectation than an attractive benefit. At that point, we’ll be left with the huge costs of subsidized shipping without incremental sales to support those costs. And that ain’t a pretty equation.

That said, strategic use of free shipping incentives can lead to incremental sales and greater brand loyalty. We’re probably all familiar with the various “free shipping when you spend $X” offers that are out there, so let’s consider some of the more innovative strategies in use today for free shipping:

Free shipping as part of the business model

Zappos really uses free shipping on purchases and returns as a key component of their business model. They encourage people to order multiple sizes of the same pair of shoes and return those that didn’t fit (or those they just didn’t like, for that matter). Free shipping removes a key disadvantage Zappos has to physical retailers, and in fact even provides an advantage for customers who can try on shoes in the comfort of their own homes.

Zappos’ CEO Tony Hseih has said Zappos is a customer service company not an e-commerce retailer, and free shipping is a big part of their customer service strategy. He’s also said Zappos looks at customer service as a marketing expense, which I think is an interesting perspective that might help the cost make business sense.

But free shipping both way at all times is not a sustainable business strategy without trade-offs. Zappos is not the low price leader in their category by any means. Even with their higher prices, public filings from the recent Amazon acquisition of Zappos exposed their relatively low profits as a percentage of sales. Zappos has certainly built a powerful brand with a loyal following so it looks to me like they’ve made the trade-offs work, but theirs could be a tough model for others to follow. I’ll be curious to see if the model continues to work within the Amazon business model.

Speaking of which…

Free shipping as a loyalty program

Amazon Prime is one of the more brilliant loyalty program innovations to come along over the last several years. For an annual fee of $79, customers can get free 2-day shipping on many key items and free standard shipping on many more. Again, this is a case of a pure-play e-commerce retailer looking to mitigate one of its disadvantages to physical retail. Amazon sunk some money into this program by giving away a lot of free trials, but they’ve since hooked people in to the fee. A recent Piper Jaffray analysis estimates Amazon Prime’s membership at 2 million people and growing at 24% annually. And once you pay $79 to get free shipping, you’re going to make the most out of it. Piper Jaffray found member spend growing from $400 annually to $900 annually!

But this again is an expensive proposition that wouldn’t be sustainable for most businesses. The $79 will help to defray some of the free shipping costs, but as with most paid loyalty programs that I’ve studied, customers don’t renew their memberships unless they’re getting a positive return on their investments. And Amazon, as a general merchandiser, can provide customers with enough product choices that they can visualize making enough purchases to get their money back and then some. Specialty retailers may not be able to offer a similar program on their own; although, I keep thinking there might be an opportunity for some third party to aggregate a bunch of retailers into a program in a way that might work. (Maybe that’s a future post.)

Free shipping as a store traffic driver

The previous two examples were pure-play retailers using free shipping as a way to mitigate a major disadvantage they have to physical retailers. So how can multi-channel retailers leverage the advantages they have with their multiple channels? Free shipping to stores is one way. When I was at Borders, we offered unrestricted free shipping to our stores as a cross-channel strategy in order to leverage the selection and experience of Borders.com combined with the convenience of picking up the order in our stores. Originally, we thought it would appeal mostly to urban dwellers who didn’t want packages left on their doorsteps, but it turned out to be a hit all around for people who just didn’t want to pay for shipping. Wal-Mart does something similar with their Site-to-Store program. And Borders just took it a step further with their recently announced “in stock guarantee” for their stores that offers free shipping to home for customers if the Borders store is out-of-stock on the item the customer came in to purchase.

But businesses offering free shipping without purchase hurdles often depend on additional future purchases to make the offering profitable. For example, we ran a lot of analysis at Borders on the free shipping to stores offer. We determined we needed X% of people to buy $X more in-store when they picked up their orders for the offer to make financial sense. With the new offering, it appears Borders is counting on pulling some market share from Amazon with the promise of books available right now in their stores.

There can be little doubt that free shipping is a powerful offer, but we have to be careful how we wield it. Someone recently told me that effectiveness of fire lies in prudence and intention. Used in a positive manner, it can provide great warmth and light but when used in a negative manner it can cause great destruction. Since I like overly dramatic metaphors, I’m going to compare free shipping to fire. Let’s be careful out there. :-)

What do you think? Should we be concerned about free shipping becoming an expectation? How do you use free shipping strategically?



The Case to Cross It Up

For any retailer with more than one channel, becoming cross-channel is a critically important way to fully leverage its assets to provide a greater experience to its customers, which ultimately leads to more customer retention, brand loyalty and, of course, sales and profits.

In an effort to highlight and tackle the issues associated with implementing cross channel strategies, Kasey Lobaugh of Deloitte Consulting and Jim Bengier of Sterling Commerce pulled together a Cross Channel Retail Consortium of retail thought leaders that included executives from a cross section of retailers as well as some industry analysts, vendors and yours truly for a day of discussion this past Sunday on the strategy, tactics and challenges of implementing effective retail cross channel experiences for our customers.

Before I delve deeper into my thoughts on the day, it’s probably worth defining “cross channel.” Many times, “multi-channel” and “cross-channel” are used interchangeably, but I don’t think they’re the same thing at all. “Multi-channel” is simply operating in more than one channel while “cross-channel” is leveraging the strengths of each channel to create an overall customer experience that is greater than the sum of its parts. It’s 1+1=3.

Sounds great, right? So, why aren’t more retailers doing it?

Three basic themes emerged from the group:

  1. Lack of executive and board level understanding of the value of customers transacting in multiple channels (and, conversely, the negative affects that occur when customers are prevented from interacting with a brand across channels)
  2. Lack of incentives for various employees, from executive to front line staff, to encourage shopping across channels
  3. IT systems limitations

So, let’s tackle these issues one-by-one.

1. Lack of executive and board level understanding of the value of creating cross channel experiences

The group agreed that getting the buy-in of the CEO is critical. No one believed, and I certainly agree, that a strategy as all-encompassing as creating a cross channel experience has any chance at success without the CEO actively driving it. So, just get the CEO to support it. Easy, right? Not so much.

In my experience, the best way to convince a CEO of the value of any strategy is to show him or her how it will maximize profits. One retailer in the room was able to show the value of customers shopping in multiple channels pretty easily by tracking customer transactions in all channels through a loyalty program. Others were able to do the same in various degrees, but the general concern was the potentially high cost of discounts provided in exchange for such information. (I have lots to say about loyalty programs, but I’ll save that for another post). Janet Sherlock of AMR Research extolled the virtues of emailed receipts as an environmentally attractive and altogether less costly alternative option to harness ID’d transactions. I find that proposal extremely intriguing.

While transactions tell us about customers who completed transactions in each channel, they don’t tell us about customers who researched online to buy in store or customers who took a look at products in store before buying online, and the group longed for an industry standard metric that could be used to assess the amount of sales influenced by the another channel.

Another driver of CEO support is attention to the issue from the Board. One retailer said all it took was a bad experience by one 17-year-old granddaughter of a Board member to get the issue front and center. Funny how life is, isn’t it? Who could imagine that one young girl’s frustration can drive a strategic shift in a major national retailer? But maybe the lesson here is about the importance of getting decision makers’ heads out of the financial spreadsheets and into real-life experiences to help them understand how their companies are (or are not) serving their customers.

2. Lack of incentives for various employees to encourage shopping across channels

One retailer described the challenges of focusing on customer experience at a retailer that is driven by “an imperialist merchant organization.” (There was no way I could write this piece without including that quote.) Merchants, by their nature, tend to care a lot more about product than customers. But in the end, they’re generally heavily driven by sales, margin and turn metrics. There are many cross channel strategies can be implemented to help merchants drive these key metrics.

For example, the web has many selling capabilities that are nearly impossible to achieve in store because of physical constraints. Customer reviews are extremely popular online and customers regularly report using them to make purchase decisions (both online and in store); however, they are very difficult to make available in a physical environment. Some retailers are making them available via in-store kiosks, but the kiosks are a large capital investment to make if they’re not already available. But just about everyone’s got a computer in his or her pocket or purse these days. Let’s make more use of mobile phone technology to give people access to customer reviews, recommendations, wish lists, gift registries, etc. in store while they’re standing in front of the products.

There are also advantages in stores than can be leveraged online. Many retailers have incredible experts in their stores. How can those experts build content that can be used by customers and other employees alike to improve the shopping experience? How about security? Should retailers start to look for ways to accept payment in their stores for web orders when customers aren’t comfortable paying online? Believe it or not, there are still a lot of customers out there who aren’t comfortable using a credit card online, and in this economy there are more and more customers who aren’t comfortable or aren’t able to use credit cards period. But they’re still interested in buying from us, and we should find every way we can to help them do so.

3. IT systems limitations

There’s no question that IT legacy systems cause us a lot of trouble when we try to integrate our customer experiences. But I also wonder how many times we fall back too easily on such an excuse. I’ve written about my Tree Stump Theory previously, and it’s certainly prevalent in this case. We have a lot of compelling reasons why systems prevent us from implementing such key capabilities as the ability to accept returns of online purchases in store. But guess what? Our customers don’t know those reasons, and even if they did, they don’t care. While many retailers have found ways around the returns issues, just as many still have not. Either way, the case to prioritize such efforts should rely on some of the same techniques described above to make compelling cases to the CEO and the incent imperialist merchants.

Pure play retailers, and especially Amazon, continue to grow at rapid rates by pulling more and more market share. Multi-channel retailers have assets in their stores that pure plays don’t, but it’s going to take implementing true cross channel strategies to leverage those assets in a competitively advantageous way. Let’s cross it up!

What cross-channel strategies have you implemented or are considering implementing? What are the barriers to cross-channel in your organization?

Photo credit: Wikimedia Commons



Retail: Shaken Not Stirred by Kevin Ertell


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