RETENTION & LOYALTY EXECUTIVE SUMMARY BEST PRACTICE GUIDE

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1 February 10 /bpgretentionandloyalty BEST PRACTICE GUIDE RETENTION & LOYALTY Expert advice and guidance on business-to-business customer loyalty, retention and management

2 CONTENTS Best practice guide: Retention & Loyalty /bpgretentionandloyalty INTRODUCTION Executive Summary Section 1: Introduction to loyalty and retention Loyalty management can be divided into two main approaches: targeted and untargeted. The latter is best used when the customer base in question is relatively homogenous. In this instance, loyalty can be best improved by improving sales and servicing techniques. Targeted approaches to improving loyalty are best employed on a well-defined group of high value customers who are potentially very responsive. Loyalty is best described as a state of mind, which influences how they behave. Whilst a any number of attitudes, beliefs or behaviours may contribute to a feeling of loyalty, these can vary widely, can be quite unpredictable and may appear trivial. Loyalty is a composite. Loyalty exists in different customers at different degrees. Therefore the objective of loyalty activity should not be to make all customers loyal, but to increase the loyalty of those customers who are likely to respond. The exchange of information is one of the critical components to loyalty, with loyal customers expecting more information from brands, and visa versa. There are significant customer service implications to loyalty activity, with loyal customers expecting to receive better service and to be rewarded. The best approaches to loyalty include both a state of mind approach, wherein managing loyalty is a constant theme of customer management, and a behavoural approach, which is a more marketing focused approach, designed to reinforce specific behaviours. There are seven key steps in managing customer loyalty: defining loyalty; defining objectives; identifying customer needs; developing the approach; define the segments; implementing the capability; measuring and testing. Section 2: Customer information management and the single customer view Building and managing customer relationships is a perennial but critical business issue. However, it has been complicated by the arrival of the Internet and the resulting increase in competitive activity. CRM systems were seen as a panacea to transform customer data and therefore relationships and loyalty, but all too often have failed to meet expectations. An alternative approach that has emerged is customer information management (CIM), which promises to allow companies to treat different customers differently. The primary problem with CRM in its initial incarnation was that attention was focused on the technology itself rather than the business strategies required to make it work. Consequently comparatively few implementations were successful and CRM got a bad name. Whilst most companies accept the Pareto Principal that 20 per cent of their customers will generate most profit, few understand how to segment the 80 per cent effectively and derive maximum value from them. There are a number of reasons why CRM systems fail to add value to this process. The best approaches to loyalty include both a state of mind approach, wherein managing loyalty is a constant theme of customer management, and a behavoural approach, which is a more marketing focused approach, designed to reinforce specific behaviours Best Practice Guide: Retention & Loyalty B2B Marketing

3 /bpgretentionandloyalty The single customer view (SCV) has emerged as a leading alternative to CRM. It is aimed at creating a clear and accurate view of customers and their relative value, centralising previously disparate and incompatible data sources into a single transparent universe. Customer information management (CIM) bridges the gap between data storage and customer valuation by showing companies how to use customer data to make decisions that will enhance customer profitability and loyalty. Its central tenant is that a company s profitability depends largely on its ability to allocate capital and resources across its most profitable and least profitable customers. This requires them to move beyond the collection of basic demographic data and to embrace additional behavioural, predictive and preference-orientated information. The three major stages in the CIM process are value-based customer segmentation, customer-centric KPI definition and customer segment profiling. The first step is to plot the customer lifecycle and identify key customer interactions with customers across that lifecycle. The next step is development of customer experience designs for each customer segment during significant purchase or loyalty events. A customer scorecard is ultimately the device that organisations will use to measure the impact of such customer experiences on retention and profitability. Customer information management (CIM) bridges the gap between data storage and customer valuation by showing companies how to use customer data to make decisions that will enhance customer profitability and loyalty. Overall, the CIM cycle spans initial segmentation and profiling to eventual measurement and learning. CIM is iterative in that process and learning, in turn, leads back to revised segmentation and customer experience design. Section 3: Understanding your customer the role of research Customer research and satisfaction surveys are widely recognised as essential marketing tools. However, there are some fundamental lessons which most B2B organisations would do well to consider to optimise the effectiveness of such activity. Don t treat your customers as if they re all the same: they re not. Approach them accordingly. Remember that a customer satisfaction interview is actually part of the customer management process. The interview must reflect the brand in terms of tone and style. Understand what really drives satisfaction. Don t rely on internal factors find out which factors are important to them. View customer satisfaction research as a proactive customer relationship management tool. Use it as a means of identifying new opportunities. View customer satisfaction metrics alongside other key corporate metrics, such as brand or finance. Best Practice Guide: Retention & Loyalty B2B Marketing

4 INTRODUCTION Executive Summary /bpgretentionandloyalty Section 4: Loyalty programmes Segmentation and personalisation are the two essential tenants of effective loyalty marketing. In order to segment your data effectively, companies must embrace the notion of the customer journey, moving from disloyal, infrequent spenders to loyal regular spenders. If a migration path can be identified, incentives can then be used to encourage individuals along it. This process can also identify product portfolio gaps. Marketing functions must ask themselves if they are gathering the more relevant data to inform their decision making. For example, do they know which 2 per cent of customers provide 60 per cent of their revenue? In other words, who are their key customers? Such information must be gathered from purchase information, however often surveys and questionnaires are the methods of choice. Loyalty programmes and incentives are amongst the best ways of capturing customer data, communicating with them and helping them move through the value segments. As these programme develop through time, they can become more sophisticated, delivering more value to the organisation. However, sophisticated programmes require sophisticated communications techniques and practices. Database marketing can be combined with market research and/or third party data in order to enhance the records and the value that can be derived from them. However, both techniques are difficult and potentially problematic. In order to segment your data effectively, companies must embrace the notion of the customer journey, moving from disloyal, infrequent spenders to loyal regular spenders. If a migration path can be identified, incentives can then be used to encourage individuals along it. This process can also identify product portfolio gaps Section 5: Communications Marketing communications activity in all forms can play a key role in helping maintain loyalty and retention. Benefits can include: making customer feel valued; sharing experience and expertise; creating and sustaining dialogue and promoting customer advocacy. Objectives for any marcomms activity should always utilise the SMART methodology: in other words, be Specific, Measurable, Achievable, Realistic and Timed. Typical objectives may relate to business growth, retention or advocacy. See also chapter 7 on the Net Promoter Score. Once objectives are set, the next most important task is data management and segmentation. Data accuracy is vital, but it s also essential to ensure that the offer reflects the drivers and needs of the individual. Also, ensure every interaction is used to capture more intelligence. The message and creative must depend on the opportunity and the objective of the campaign. This chapter includes a grid on factors to consider for communications campaigns with different objectives, as well as a breakdown of the pros and cons of different media. Best Practice Guide: Retention & Loyalty B2B Marketing

5 INTRODUCTION Executive Summary /bpgretentionandloyalty Section 6: Online interactions The web is increasingly becoming most companies central point of customer interaction, and as a consequence is a critical tool in the challenge of building and managing their loyalty. This includes both companies own sites, as well as social media sites and forums run by third parties. Its therefore beholden on all B2B companies to ensure their customer have the right kind of online customer experience with them. Characteristics such as the following can be deemed essential: interactions must be useful; consistent, remarkable; convenient; proactive and practical. There are three primary techniques which brands can use to understand the experience which their website users have: user interviews; customer panels and online surveys. In order to create a consistent online experience, creating a touchpoint map is recommended: this is a diagram that shows the flow of each interaction, the consistency of the message and information, and the user flow through each touchpoint. The payoff for a company with an improving NPS is reducing customer churn, reducing costs to serve, increased lifetime value and improved upsell/cross sell opportunities. NPS reflects the reality of word of mouth activity Rolling out such an approach will probably depend on access to some kind of marketing automation or management platform, such as a CRM system or demand generation application. Testing is essential to iron out technical issues with sites which can results in customer dissatisfaction and ultimately churn. It is estimated that testing a site with 15 representative individuals can uncover 99 per cent of usability issues. Relevant content and offers are important to drive interaction, as are nudges, to remind users to return to the site. Social media is becoming an increasingly important part of B2B users online interactions. These can be divided into two groups: onsite and offsite. Onsite activity requires careful moderation and an open-minded attitude to negative comments. Offsite activity can be monitored using specialist tools, and is an important barometer for what your audience is saying about you. Section 7: Net promoter score Net Promoter is a loyalty metric and a discipline for using customer feedback to fuel customer growth in your business, developed by Satmetrix, Bain & Co and Fred Reichheld. Net Promoter Score (NPS) is measured by asking a company s customers the question: How likely are you to recommend X company/product to a colleague or friend? The answers are given on a scale of Respondents can then be categorised into one of three groups depending on their responses: promoters, passives and detractors. The payoff for a company with an improving NPS is reducing customer churn, reducing costs to serve, increased lifetime value and improved upsell/cross sell opportunities. NPS reflects the reality of word of mouth activity. Satmetix has taken the process a stage beyond NPS to develop a net promoter discipline, based on an operating model designed to provide a framework to help organisations create a customer-centric enterprise. Best Practice Guide: Retention & Loyalty B2B Marketing

6 /bpgretentionandloyalty Contents SECTION 1 Introduction to loyalty and retention...10 By Prof Merlin Stone, research director, WCL 1.1 How should loyalty be managed? Definitions of loyalty Consequences of choice of definitions (change in booklet and those below) Managing loyalty Steps in relationship strategy...13 SECTION 2 SECTION 3 SECTION 4 Understanding your customers: The role of data...17 By Ian Lovatt, CEO, Blue Sheep 2.1 CRM technology could it really manage From CRM to SCV Heart of the matter What do we mean by CIM CRM+SCV+CIM= formula for growth Summary...21 Understanding your customers: The role of research...22 By David Willan, chairman, Circle Research 3.1 Segmentation is all-important Be aware of the complexities of satisfaction surveys Base service standards on needs and expectations View customer research as a proactive CRM tool View customer satisfaction as a KPI Are you adhering to best practice?...26 Loyalty programmes...27 By Andy Wood, MD, GI Insight 4.1 Tracking the value segments Segment refinement Relevant data Loyalty schemes and incentives Targeting and personalisation Pan European segmentation Enhancing the database The experts Conclusion...31 Best Practice Guide: Retention & Loyalty B2B Marketing

7 CONTENTS Best practice guide: Retention & Loyalty /bpgretentionandloyalty SECTION 5 Communications...33 By Paul Hewerdine, partner and planning director, Earnest 5.1 Objective setting Understanding your audience Delivering the right message at the right time Selecting the right tactical mix...36 SECTION 6 Online interactions...42 By Paul Hatcher, web development director, Base One 6.1 Making your website useful A consistent experience: Mapping the touchpoints Phasing your approach Making sure it works and can be used Content: Exclusives, interactions, relevancy and delivery Social media, conversations and dialogue...47 SECTION 7 The net promoter score: A loyalty discipline, not a research metric...49 By Martin Green, vice president of EMEA region, Satmetrix 7.1 What is net promoter and how does it work? The net promoter discipline Is recession the right time to use NPS for loyalty...54 SECTION 8 Case Studies System heroes DNX, Sun Microsystems Long Tail Loewy/The Team, Cisco...56 Best Practice Guide: Retention & Loyalty B2B Marketing

8 /bpgretentionandloyalty INTRODUCTION Contributors biographies Martin Green, vice president of EMEA, Satmetrix Green leads the sales and business operations for the region. With an extensive track record in managing complex global customer loyalty programmes, he specialises in the international telecommunications and technology arena. Green has designed and managed the overall relationship for significant customer loyalty engagements with Fortune 100 companies such as HP, Lucent and Nokia. Prior to joining Satmetrix, he worked for several leading global consulting and research firms. Tel: Paul Hatcher, web development director, Base One A veteran of the dot com bubble, Hatcher started the digital team at Base One in With a background in project management, front-end coding and site planning, he now focuses on digital planning, in particular user-computer interaction, information architecture, designing interactions and user testing. paul.hatcher@baseonegroup.co.uk Tel: Paul Hewerdine, partner and planning director, Earnest Paul started his career client side at Hitachi, before moving to Wilson Harvey a specialist technology agency in Following the acquisition of Wilson Harvey by Loewy in 2005, Paul headed up the group s B2B marketing team, planning and delivering integrated campaigns for Cisco, Fujitsu, Oracle and Vodafone. In September 2009, Paul left Loewy to found Earnest with Chris Wilson, Chairman of the Association of B2B Agencies. Earnest is already one of the fastest growing agencies in the B2B space combining game changing strategy and creative to deliver real results for clients across Europe. paul.hewerdine@earnest-agency.com Tel: Iain Lovatt, CEO, Blue Sheep A co-founder and executive chairman of Blue Sheep, Lovatt is responsible for the firsts in the business information market including the development of the largest aggregated business database in the UK. His expertise lies in understanding a client s objectives and bespoke solutions to accelerate growth for all parties. Lovatt holds positions as chair of the IDM Data Council and a member of the British Standards Institute steering group. Iain.lovatt@bluesheep.com Tel: Best Practice Guide: Retention & Loyalty B2B Marketing

9 INTRODUCTION Contributors biographies /bpgretentionandloyalty Prof Merlin Stone, research director, WCL As the research director at WCL, Prof Stone specialises in change management and customer, citizen and stakeholder management. He is also a part-time professor at Bristol Business School and a visiting professor at De Montfort, Oxford Brookes and Portsmouth Universities. Professor Stone is a Fellow of the Chartered Institute of Marketing and an Honorary Life Fellow of the UK s Institute of Direct Marketing. Merlin.Stone@w-c-l.com Tel: David Willan, chairman, Circle Research After holding senior roles at IMR and The Economist Intelligence Unit, Willan co-founded BPRI which became the largest independent B2B research agency in the UK. He is an associate of Ashridge Business School, and an occasional speaker at major industry events such as the GSMA Mobile World Congress. At Circle Researsch, Willan s expertise lies in the technology, financial services, professional services and energy sectors. david.willan@circle-research.com Tel: Andy Wood, managing director, GI Insight Andy Wood is managing director of GI Insight, a company that provides a complete database marketing approach covering database building, loyalty programmes, strategy & analysis, campaign execution and fulfillment. He has over 21 years of experience in the field of database marketing and has vast experience in the creation and management of retail loyalty programmes. His particular skills lie in the analysis of data and its application to improving customer communication, turnover and ultimately profit. Andy.Wood@GI-SolutionsGroup.com Tel: Best Practice Guide: Retention & Loyalty B2B Marketing

10 /bpgretentionandloyalty About B2B Marketing B 2B Marketing is the comprehensive information resource for business-to-business marketers. Its mission is to provide practitioners with the information they need to perform better and achieve more, whatever sector of the B2B space they are operating in. Launched in 2004 as B2B Marketing magazine, it has since evolved into a multi-faceted resource, delivering a broad range of content in a variety of different forms and formats. Its key products are: B2B Marketing Online: A huge archive of content focusing on every conceivable aspect of business-to-business marketing, and including various opportunities for online interaction and learning, such as a best practice webcast programme, and an interactive online directory for supplier sourcing. B2B Marketing magazine:the essential monthly guide to business-to-business marketing, with a key focus on best practice guidance, plus monthly features looking at current trends, regular research, profiles etc. The B2B Marketing Awards: The showpiece event for brands and practitioners, attracting over 600 people, and with former winners including a host of top-tier B2B brands including, Barclays, TNT, American Express, HP, Microsoft, JCB, Symantec, DPD, Rackspace, Volkswagen, Stanley, RSA, and many more B2B Marketing Events: Regular seminars and training sessions aimed at helping marketers hear and learn first hand from the experts in order to hone their skills. For more information on any of these products or services go to or call Best Practice Guide: Retention & Loyalty B2B Marketing