Tuesday, November 20, 2018

The Customer Experience Difference: Are Customers Loyal to Your Brand or Your Loyalty Program?

Photo by rawpixel on Unsplash
Brands do not (and should not) improve customer experience (CX) simply because it feels right to have happier customers. The reason to invest in CX is to deliver more loyal customers—customers who spend more, churn less, are less costly to serve, inclined to recommend or refer others, and more likely to consider and purchase a broader selection of your products. Strong CX delivers more customer satisfaction, and that results in greater customer loyalty, drives up the lifetime value of your customers, and makes your bosses and shareholders happy.

Brands that struggle to meaningfully differentiate their CX often turn to other tactics to produce something akin to loyalty. So-called loyalty programs reward repeat customers with points, rewards or discounts—and they’ve gotten very popular (at least among marketers). Today, the US’s 300 million consumers represent 3.8 billion loyalty program memberships, and more than half are inactive.

The problem with many loyalty programs is that they don’t actually deliver loyalty. They deliver repeat purchases, and repeat purchases may look a lot like loyalty, but you cannot know what is driving preference and purchases unless you listen to and understand customer perception. A good loyalty program can produce ROI by delivering incremental revenue in excess of program costs, but brands must never mistake loyalty to their points and incentives with genuine loyalty to their brand.

A truly loyal customer is willing to pay more for your brand, while a points-loyal customer needs an inducement to purchase. A brand-loyal customer is less interested in competitive products, while a points-loyal customer is willing to make a switch for the right mix of price, discounts, and rewards. And an authentic brand loyalist will seek your brand out, engage more, and tell others, while a points loyal customer is more interested in the value they can extract than in having a relationship with your brand.

In short, points loyalty is transactional while true loyalty is emotional. Your airline has a loyalty program, and chances are you feel so little loyalty to that brand that if it was gone tomorrow and replaced with another carrier flying your favorite routes, you might not care if it weren’t for lost points and status. Meanwhile, Apple doesn’t have a rewards program, and it engenders some of the greatest loyalty of any brand in the world. As a result, Apple generates enormous margins—in one recent quarter, Apple captured 87% of smartphone industry profits despite accounting for only about 18% of the total units sold in the period.

To learn more about true loyalty from brands that earn the most customer loyalty, please continue reading my blog post on the Gartner blog. 

Friday, October 5, 2018

Digital Transformation: No Pain, No Gain

Is there any business catchphrase more ubiquitous nowadays than "digital transformation"? Everyone craves the agility, innovation, relevance, engagement, reputation, loyalty, and brand advocacy that digital transformation promises. But how many are willing to do what it takes to achieve the sort of digital transformation that matters? If your organization wants a meaningful digital transformation, then it must be willing to do enough to make it worthwhile; otherwise, you are just putting band-aids on a gaping wound.

What does "doing enough" mean? That depends on many factors, such as your category, legacy systems, culture, the frequency of acquisitions, disparate systems, centralization, global footprint, and other attributes, but the most important factors are your openness to risk and your willingness to invest what it takes. In short: No pain, no gain.

Today, many traditional organizations cast a desiring eye upon their upstart competition having "benefits" such as agility, private equity, and newer technology unburdened by legacy systems. (Few, however, would take the corresponding drawbacks of cashflow urgency, bootstrap mentality, and--ironically enough--the lack of legacy reputation, customer base, and institutional knowledge.) The difference is that startups are permitted (in fact, encouraged ) to take business risks, invest heavily in building the right tech stack, and take losses against future gains. Meanwhile, traditional public companies are beholden to Wall Street expectations for consistent quarterly results.

This is why the key to digital transformation isn't going to be found in your IT department but in the C-suite. What risks are you willing to take? Can you put a portion of today's business model at risk to create tomorrow's? How much are you willing to invest? Can you tell your shareholders that transforming your company for success tomorrow will involve increased costs today?

I regularly speak with business leaders who tell me they want to emulate Amazon, but Amazon lost almost $3 billion before turning its first profit. And well after Amazon established itself, it continued to prioritize innovation and market share over margin. And Amazon took risks—significant risks. It launched Amazon Prime and AWS and won; and it lost on the Amazon Fire Phone, which Amazon pulled little more than a year after it debuted. Of course, few want to emulate Amazon's losses, its purposeful reduced margin, its considerable R&D costs, and its risks. They want to be Amazon without doing Amazon.

Wednesday, September 12, 2018

Customer Experience and the "Next Best Action" Dilemma

Understand your next best action before you leap!
Photo by Shane Rounce on Unsplash
As an analyst covering customer experience, I am often briefed by multichannel, personalization, and marketing automation platforms. Many promise to help brands improve their customer experience by identifying and executing the "next best action" for each of their individual customers. The idea, in theory, is that your brand can improve its customer experiences and relationships by performing the one next best action at the best time in the best channel, providing one-to-one, personalized brand experiences at scale. But the reality is often quite a bit different.

The challenge with the concept of "next best action" lies in a simple dilemma: Who is that action designed to help most--the customer or the brand? This challenge is easy to see from the outside looking in but difficult to recognize when your performance appraisal, raise, bonus or job depends on you producing rapid business or economic outcomes. To uncover and resolve the dilemma of "next best action," ask three simple questions:
  • The next best action to what end?
  • The next best action to produce what measurable outcome?
  • And, finally, the next best action for whom?
By using these three questions, you may find that the goal of these platforms and their "next best action" functionality is not to improve customer experience but to lift brands' short-term sales and marketing results. The two are not mutually exclusive, but as we explore these three questions, it becomes easy to see how prioritizing the former before the latter can do more to undermine than enhance your brand's customer experience.

Why do it: To what end?  

Rarely in life is there a single "next best action" that fits every possible end. Consider your Monday morning as the alarm goes off. Sleeping in may leave you feeling fresher and more rested throughout your day; getting up early to exercise will improve both your mood and your health; and taking your early hours to rehearse your big presentation may reduce your stress and enhance job performance. So, which is the proper "next best action"? That depends on which of your priorities is most important.

So, when your brand invests six or seven figures in a platform and program to produce "next best actions," why do you do it? What is your priority? Is it to provide immediate business outcomes? To convince customers your brand cares? To enhance and improve your customers' lives? Your next best action will be quite a bit different depending on which of these you elect to emphasize.

To explore the next two questions (What do you want: To produce what measurable outcome? and Who benefits: For whom?) and to recognize how to flip the perspective of "next best action," please continue reading the post on my blog at Gartner.com.