Thursday, March 8, 2012

The Transformative POWER of WHY in Customer Loyalty Programs - as featured in Loyalty This Week

In this world of exploding global proliferation, the next breakthrough in marketing, sales, product/service development and sustainable customer loyalty will be achieved by tightly integrating WHY the consumers buy with the currently  available WHAT and WHERE of consumers’ actions. 

The Marketplace Challenge: Explosion in Choices – the enormous growth in the number of choices is making it extremely difficult and time consuming for consumers and merchants to make the right sales, marketing and product and service development decisions.

-          Products and services: The digitization revolution has resulted in an explosion in the number and variety of consumer products, most especially in the area of consumer electronics where differentiation and new versions are increasingly based on easy to change software rather than hardware

-          Channels: The internet has become a pervasive and expansive set of buying destinations, populated by aggregators such as Amazon, as well as on-line destinations of more traditional “brick and mortar” locations.

-          Sources: Global sourcing has become the norm

-          Incentives: the mix of incentives now includes a myriad of coupon discounts from numerous sources, as well as loyalty program based price reductions and location and event based incentives

Just identifying all of the choices has become a daunting task as there is no single channel or depository where the full set of available choices can be found.

This is unfolding within the background of limited growth in discretionary spending, putting even more pressure on commercial strategies based on “a rising tide lifts all boats” and an assumption that, in the absence of effective targeting strategies, “we will naturally get our fair share of the market”. 

This Is Not Your Fathers’ Segmentation: historically effective demographic-centric ways of segmenting consumer demand as a way to predict consumer buying behavior are no longer effective. There is a growing fracturing along multiple types and layers of consumer “fault lines” – requiring more dynamic means of aggregating groups of consumers in support of proactive sales and marketing campaigns.

The ability to effectively segment consumers has become even more important especially in the area of new/refined product and service development to ensure that these products and services immediately appeal to the right target audience.

The explosion in choices and the speed with which new alternatives are being brought into the marketplace are making it imperative for new products and services to achieve almost immediate market acceptance and secure a profitable level of market penetration within mere months, if not weeks.

This increasingly fragmented and segmented set of consumers with widely different buying behaviors challenges conventional “one size fits all” sales and marketing campaigns. Even highly sophisticated 1 to 1 sales and marketing strategies will be of limited value if serious errors are made in the design, core functionality and value proposition of products and services.

Focus groups are proving of limited value in optimal design decisions as they are likely to cover only a small set of potential target consumer segments and reflect a “single point in time” view, frequently absent of any information about other competitors for the consumers’ wallet.

Segmentation strategies must systematically embed the concept of aggregation based on the WHY of consumers buying decision preferences rather than assuming that demographic segments will exhibit a sufficiently common set of buying behavior characteristics.

The Rise of the Consumer: What Consumers REALLY Want – consumers are becoming ever more insistent that whatever they purchase must fit their specific needs and preferences. Pricing discounts necessary to induce them to purchase a specific product or service that does not address their needs has become prohibitive.

Consumers increasingly depend on opinions of other experienced consumers in order to refine their buying decisions and less on the opinions of “experts” and information published by merchants. The growth in social media based information requires a sharply different understanding of what influences end consumer buying behavior and how to leverage these new and diffuse information sources.

Existing sources of web-based information for consumers have extremely limited content. They do not provide recommendations that are based on consumers’ needs. They are text based opinions that are difficult and time consuming to consolidate and draw conclusive buying decisions.

Text based opinions do not allow the consumer to select products, services or locations  based on a specific set of demographic and/or buying behavior characteristics.

Consumers are also becoming increasingly comfortable with the use of mobile devices. They expect mobile devices to operate in real time at the point of product and service purchase; however this type of support is currently not available for product or service purchases.

These forces are combining to create a perfect storm of opportunity for a new solution to address the growing need for end consumers in their search for those products, services, buying locations and deals that best fit their preferences and needs.

Consumers want a straight forward path out of this labyrinth of choices – an actual set of custom recommendations of WHAT and WHERE to buy based on:
-          Their unique values and preferences;
-          The opinions of other experienced users who share those values and preferences; and
-          Availability in real time and on the device of their choice

The Implication for Sustainable Customer Loyalty – In many cases the essence of existing customer loyalty programs devolved into a “heroin” strategy: continuing to buy and re-buy temporary customer loyalty through increasingly differentiated financial incentives.

Consumers increasingly exhibit any semblance of sustainable loyalty only to those goods and services where they experience a direct fit with their personal values and preferences – where they “see themselves” through the prism of a companies’ offerings and interactions.

Consumers now determine their loyalty to a company through this prism of personally experienced differentiation. They use loyalty programs as a reward for a bonding decision they have already made – so most loyalty programs are more defensive to incentivize already loyal customers and do not have a strong track record in promoting loyalty switches. Most loyalty programs may increase frequency and/or volume of purchases – but not switch core customer loyalty.

Therefore, attempts to purchase consumer loyalty without explicit linkage to the types of personal value that gives birth to true consumer loyalty are frequently doomed to failure. They become a slope of increasing “heroin” to fuel short term purchases but result in easy switching when the financial incentive is withdrawn, and little or no sustainability of future purchases.

This lack of consumer valued differentiation has made it extremely difficult for merchants to maintain programs that deliver sustainable customer loyalty results.

These external challenges are further exacerbated by many customer loyalty programs being strategically disconnected from core marketing and sales activities, with limited dynamic synergy or interaction.

In light of these Tsunami marketplace upheavals there is a need for a new customer loyalty paradigm - a means to use customer loyalty programs as a leading and not a lagging strategy and to develop approaches that provide on-going customer loyalty without heavy reliance upon the heroin of financial incentives and discounts.

Breadth of the Full Impact: Every Ecosystem Participant – this proliferation of choices impacts the decision making of all participants in the consumer products ecosystem, from end consumers to merchants and manufacturers, from consultants to financial institutions. Below is a summary of some of the key challenges and opportunities facing 3 of these main ecosystem participants:

The Immense Cost of Wrong Choices:  – in terms of both direct and opportunity, the costs of making business decisions with inaccurate and untimely information is costing the US economy alone hundreds of billions of dollars annually:
Ø  Excess inventories (20% to 50%+)
Ø  Excess price protection/markdowns (10% to 30%)
Ø  Post product or service release redevelopment costs (10% to 25%)
Ø  Lost sales from dissatisfied consumers/excess returns (5% - 10%)
Ø  Excess sales and marketing expenses including promotion and research (15% - 25%)

 These levels will only rise in the future unless a new and improved methodology is adopted to better define existing and future consumer needs and priorities.

The Current Fatal Flaw - current sales, marketing and product and service development business decision making is hamstrung by relying upon only the WHERE and to a very limited degree the WHO (limited psycho-demographic data) and the WHAT (limited SKU level data) mainly from POS data (Point Of Sales) or plant/depot shipments and some (generally out of date) customer profile data.

Another major flaw is that the data is generally only about own existing customers - bereft of any competitive perspective.

While it has been possible to a degree to project future consumer purchases (and NOT real demand) from POS data, the projection is generally restricted to using pricing as the CORE causal factor. This standard approach is proving to be less effective going forward due to continuing consumer segmentation and fragmentation and needs to include the true causal factor of WHY specific purchases have been made, and at which specific location, to permit the development of actionable projections at an acceptable level of accuracy.

Decisive and effective sales, marketing, product and service design and product and service choice strategic/tactical business planning, profit planning and competitive decision-making decisions can be made only with quantifiable information that can be modeled to reflect expected consumer buying behavior through “what if” simulations.

The Breakthrough: The Transformative POWER and Benefits of WHY – In order to make profitable decisions, manufacturers, merchants and their lenders need to know WHY consumers are choosing their particular product or service, WHAT and WHERE are they buying from competitors and WHY are they buying from competitors. Only then can the product or service be aligned with customers’ values and personal preferences.
More effective and sustainable customer loyalty programs are based on the integration of the following data:

-       WHO the customers are, and from WHICH merchants they buy each product and service; and
-       WHY they buy from those merchants and brands and WHAT, WHERE and WHY they also buy from competitors.

Most customer loyalty programs are based upon the WHO and the WHICH and would benefit immensely
by adding the manufacturer’s and merchant’s WHY, and the competitor’s WHAT, WHERE and WHY.

Imagine having, in addition to the data currently collected from clients, new competitive data that would tell you:

-    WHY the consumers buy their products and services
-    WHY the consumers buy their brands and NOT their competitors brands
-    WHAT and WHERE the consumers buy from their competitors
-    WHY the consumers buy from their competitors and NOT from them.
Adding data about WHY consumers buy specific SKU level products and services, WHY they buy from specific merchants and channels and WHY they use specific financing instruments (e.g. debit cards) opens up a whole new world of preemptive and predictive analytics and decision making that would be strategically game changing and change the status quo for all participants.

The final missing element to drive this new strategy is the multiplying effect of WHEN. Time stamping the captured end consumer data would allow the ability to do forward projections of trends in end consumer preferences and needs - which is the vital precursor to the actual buying decisions.

Determining the relationship between WHY and WHEN would allow the simulations to provide merchants breakthroughs in 2 related areas:

-          Anticipating future end consumer behavior and having the “runway” to develop optimal sales and marketing strategies by “skating to the puck” and intersecting these emerging consumer preferences and needs rather than responding to historical ones; and

-          Changing your strategies and even your solutions of products and services to take advantage of where demand WILL BE in the future, and WHO and WHERE your optimal customers will be.

For the first time software systems would be able to develop custom sales, marketing and product and service development recommendations based on a competitive perspective and “goal seek” to the optimal portfolio of products and services, customers and distribution channels and provide the types of benefits outlined above.

The POWER of WHY: Competitive Superiority – The comprehensive “POWER of WHY” powering a database of quantified consumer experiences would yield solutions that are competitively superior to anything currently available in the marketplace:

Welcome to the New Reality: Real Time 1 to 1 Selling – the POWER of WHY for the first time opens the door to the brave and profitable new world for consumer buying: merchants deploying proactive and preemptive 1 to 1 sales and marketing and custom proximity sensitive strategies to interact and influence consumers BEFORE they make their buying decisions - the “heroin free zone.”

Backed by a deep understanding of the individual consumers (or refined consumer segments) needs and preferences, merchants can develop unique and customized outreach tactics to inform consumers about the availability of those products and services that consumers are most likely to value.

This strategy will deliver a fundamentally different and higher value proposition for end consumers than the traditional customer loyalty programs, significantly enhance the long term customer loyalty staying power and drive down the costs of a purely “heroin” based customer retention strategy.

For comments and more information about this subject please contact applez2applez by e-mail at or follow us on Twitter at

Connect with us on Facebook