G2 knowledge consulting

Loyalty Management

Improving Customer Contribution
Companies looking for more loyalty are often trying to stem attrition. High customer churn rates have lead companies to invest in loyalty initiatives. The goal of these programs is often limited to keeping more customers from leaving the brand. At G2 Knowledge Consulting, our loyalty management practice delivers improved retention rates, but delivering profitable loyalty is the key goal of our work. From our experience, higher retention isn’t always better. Our view is to manage loyalty to help improve the performance of total customer contribution.

Improving loyalty results from improving performance in three key areas, each of which must be driven by capable marketing analytics:

Acquiring better customers: Focus marketing initiatives on media, targets, and channels that deliver higher customer potential.
Improving retention: Stem attrition generally, but focus on retaining better customers
Improving customer value: Increase wallet share by increasing visits and/or increasing purchase profit yield.

Building profitable customer loyalty starts by driving brand purchase behavior with the “right” customers. Only those customers who are pleased with your brand represent your greatest opportunity for delivering a greater share of category spend.

So, companies need to focus their marketing activities on new customers who will value the brand proposition. Finding those customers can be accomplished by careful comparison of “best” customer to all individuals in the marketing footprint.

Knowing what customers to retain is the foremost step in delivering profitable loyalty. Once an individual has made an initial purchase, effective loyalty management requires a complete understanding of all aspects or dimensions of a customer. In general there are seven key dimensions.

The best practice approach is to explore and develop each dimension independently. This enables the development of a clear, undistorted view of consumer behavior/preferences for each dimension, so that marketing intelligence is very specific to each dimension, and relevant contact strategy can be developed accordingly.

The customer knowledge framework fuels the analytic engine built from existing customer data which, in turn, drives the measurement of incremental profit for each marketing communication for each customer.

Incremental Marketing Communication Profit – Estimates of incremental profit per customer from each marketing communication.
Demo/Psychographic Customer Segments –Customer segments based on demo/psychographic and/or attitudinal information.
Emotional Drivers Proprietary – Identifies the primary purchasemotivations for each customer. These include price, service, rewardsand convenience.
Current and Lifetime Value – Identifies the value of the customer beyond promotion periods. Lifetime value is used to understandand measure loyalty.
Marketing History – Prior communication (recency, frequency, and offers)
Wallet Share (Potential Value) – The value of a customer if 100% of the category purchases could be secured.
Purchase Behavior/Product Mix – Defines varying relationship types that drive the customer’s current value to the organization. Provides behavioral segmentation. Identifies what products and product categories the customer is buying.

In summary, our approach provides the basis to set more effective contact strategies because it allows our clients to determine:

Which loyalty communication should be assigned to which customer?
The increase in profitability that can be expected from each aspect of the loyalty program.
If loyalty expenditures should be modified for the current period, given the expected profitability from each customer for each program.
Which loyalty communication(s) should be eliminated for a time period given expected performance.
What new loyalty touch points should be tested/added?