CRM and Customer Loyalty
Customer loyalty is a top marketing objective and an inherently supported capability within most Customer Relationship Management software systems.
Using the CRM tools such as a 360-degree view of the customer relationship and deep customer intelligence you can aim your efforts at highly specific and even dynamically generated customer segments to build loyalty programs that increase customer lifetime value and customer retention. Consider the following six step approach to use CRM technology to increase customer loyalty.
Start with Precise Customer Segmentation
Your first customer segment should be built around your Ideal Customer Profile (ICP). The ICP is a description of the customer organization that will most benefit from your product or service. These high fit customers realize the highest campaign conversion rates, fastest sales cycles, highest close rates, longest customer retention and highest Customer Lifetime Value. They are your best advocates and deliver the most referrals. They are your most loyal customers.
The goal of defining the ICP is to acquire more loyal customers. When you accurately define your best customers, can you develop precise loyalty programs to find, engage and maximize the value of these customers - and find look-alike customers who are not yet in this tier but can get there with some effort.
Additional segments will be built around variables such as RFM – recency, frequency and monetary return. This is another key metric in identifying your most valuable customers.
RFM can entail creating different campaigns based on at least one or a combination of up to three variables (Recency, Frequency and/or Monetary) or scores based on customer behavior. The recency variable generally implies the last time the customer did something with your company – made an inquiry, responded to a promotion or bought something. The frequency variable measures the number of interactions over a defined period, and the monetary variable measures an economic impact, usually spend. Based on these variables, campaigns can be created to deliver more relevant messaging and maximize response. Recency emails are often automated (triggered) events. For example, when a customer makes a purchase, they then receive a follow-on email thanking them for their business, suggesting complimentary products or offering service or support. Recency emails are all about timing – and keeping mindshare without coming across as intrusive. Frequency behaviors are indicators of customer satisfaction and loyalty – and can be further capitalized on with campaigns that promote customer loyalty rewards programs and benefits. Customers with high monetary value deserve more specialized attention and messaging may promote personalized account management, special promotions just for them and gold level status with customer support.
Both ICP and RFM measurements are only be the beginning. Generally the first cuts will be made by categorizing customers by profitability – that is, return on investment, not necessarily total sales volume.
Interogate Customer Segments
The next step is to drill down and try to characterize the segments. This starts with customers’ purchase history, frequency and trends and goes on to use all the available data to try to build correlating patterns and relationships in order to construct the most complete picture possible for each group.
In building profiles, try to separate the characteristics you can use from those that are simply irrelevant. It's good to be creative when slicing and dicing the data, but not every variable or characteristic you find in that mass of information demonstrates cause and effect relationships or contributes to a model that is going to be useful.
You may discover, somehow, that half your best customers are left-handed, but except in special circumstances it's hard to see how you can build a useful loyalty campaign around that.
Some characteristics will be obviously useful, however. Pay attention to things like purchasing patterns. Do your best customers tend to make large purchases infrequently or do they make a lot of small purchases very often? Information like that can help you aim your offers at the customers' buying habits.
Be prepared for surprises. Customers have a habit of thinking outside the box when it comes to creatively meeting their needs. For example, most high end woodworking tool stores find they do some amount of business with cooks looking for everything from Shur-Form rasps to grate nutmeg and hard cheese to Japanese waterstones for putting the absolutely finest edge on chef’s knives.
This may not be a large segment, but it is potentially a very profitable one because the items being put to such unconventional uses are typically high-margin sales. Appropriate offers targeted to this group can be quite profitable, if not in the same category as a woodworker who purchases a bandsaw.
Align with Target Audiences
A central part of a precision target approach is to match your strategy as closely as possible to the buying patterns of each customer segment. This includes not only the characteristics of the offer and how it will be delivered, but also includes how much you want to spend on each segment of the market.
If you have done your segmentation correctly you will find some customer segments offer significantly more profitable returns than others. It is worth devoting more marketing investment and resources to those customers.
Try to determine how each market segment views you. Are you merely a convenience or do they feel they are part of a community built around your business? To one class of customer, an auto parts store may just be a place to pop in and pick up a case of oil. To a serious motorhead it may be a place that fills an important need in his or her life. Even if the amount of money both customers spend in the store in a given period is not all that different, what will motivate them to increase their spend will be very different.
Deliver Intelligent Offers
Next to segmenting your audience this is the most crucial part of targeted marketing. You need to use the characteristics you have identified to predict what is likely to most appeal to each group.
Here’s the place to exercise both creativity and past behaviors. An ideal offer not only appeals to the targeted customers, it is also unique. It offers them something they need but they might not think of on their own. Like the customer groups themselves, the ideal offer tends to be highly specific to each target group.
A marketing promotion or campaign offer doesn't have to be wildly original to be useful. One successful promotion by a chain of electronics stores involved running a battery club. Customers who received the offer got a wallet sized card which entitled them to two AA batteries a month.
Batteries of that size are used in most small electronic gadgets and the offer went to people who had purchased such gadgets at the stores. Of course people who buy gadgets tend to buy more gadgets and as long as they were in the store to get something they needed for free, they might as well browse.
Sometimes the best offers are also counter-intuitive. A flower shop that offers its customers a free rose on Mother’s Day is likely not only to increase business on what is already one of the busiest retail days of the year for florists, but can also help business the rest of the year by building customer consciousness and differentiating itself from competitors.
Loyalty programs include customer rewards programs, periodic statements with loyalty point accumulation, discount coupons, special promotions for existing customers, notices to upcoming events, special pre-release announcements, participation in beta or early customer adoption programs, customer anniversary letters or even thank you notes when customers place new orders. There is really a myriad of ways to reach out and engage your customers. The objective is to thank your customers and make sure they know how important they are to you and the company.
Measure Performance
The next step is to study your results and see how well your offers worked in drawing in your target customers. Ideally you’ll have some way of tracking the offers, such as a coupon to be redeemed, a promotion code that can be given for a discount or an online response that can be tracked back to a campaign. Loyalty programs also deliver a halo effect so also applying test and control groups is helpful.
It's important to constantly monitor the results of any marketing campaign, but it is doubly so on highly targeted offers. Just as the demographics of each group are narrow, so the range of getting it “right” tends to be narrow as well. You will need to fine tune your offers over progressive cycles to hit the sweet spot with your customer groups.
This is a place where the business intelligence or analytics tools in your CRM software can be invaluable. They not only help you total up your successes, they help you to see why the offers were successful. Of course they can also show you where your failures were and that's equally important.
Repeat customer purchases are low cost, high margin sales transactions that have big bottom line impact. Loyal customers also refer your company to their friends and colleagues, thereby providing a most coveted form of advertising with no additional advertising expense. Measuring referrals should be part of your loyalty program reporting.
Learn and Improve
Once you have analyzed what works and what doesn’t, apply that information to further refine your customer segmentation, tailored messaging and loyalty campaigns. This kind of marketing is ongoing. If the purpose is to maintain contact with customers the process doesn't stop after three or six months. The goal is to improve your work on every iterative campaign cycle and get as close as possible to the elusive objective of one to one marketing.