Jim answers questions from fellow Drillers

Topic Overview

Hi again folks, Jim Novo here.

What’s the best way to handle customized marketing programs, particularly if you are using customer value as the key segmentation approach? Surprise and delight, perhaps slightly influenced by making more money. Sound good? Let’s Drill it … 

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Q:  Jim, do you have an opinion on overt versus covert customer benefits?  What I meant by overt vs. covert… have you seen clients do programs where they TOLD their customers they are a valued (Gold, Platinum) customer and provided tangible benefits, vs. others who have just covertly treated these customers specially in some way (i.e. priority routing, better reps, thank you calls, etc.)

A:  Well, a program won’t be very effective if everything is completely covert.  I mean, it’s nice to get great service and that certainly contributes to customer retention, but recognition is much more powerful.  The customer needs to know they are being treated specially at some level to maximize program effectiveness. Why?

Something like call routing is a good example.  If a customer is getting priority call routing and they don’t know it, they may think the service is good.  If you tell them they are going to get it and then they get it, it’s an entitlement they earned.  More powerful, and more effective in keeping the customer.  Let’s say they are thinking of defecting.  If they don’t know they are getting priority routing, they could suspect the service might be as good at the competition.  If they know they are getting priority routing, the question becomes “Does the other guy do this to?  And if so, will he give it to me?”  See what I mean?  It’s much more powerful for the customer to know they are getting special treatment than not to know.

Generally, a “surprise and delight” approach or philosophy is the most effective and highest ROI way to treat customers.  Putting them in a program where they know all the benefits, aka “Gold Member” is fine, and may be a surprise and delight the *first* time, but wears out.  If you go with a program like that you have to constantly refresh it and add benefits to it or it gets stale.  This is what happens to most loyalty programs. 

Have you read my case study on loyalty?  This program was about as “anti-stale” as you can get – 252% ROI in the cell phone business, about as tough a biz for loyalty as you can get.  Now, I’m not trying to suggest the consumer-end details of this case would necessarily be relevant today, as the case is from 1999 and a lot has changed in the cell phone business since then. But the design of the approach and particulars of execution (including control groups) are applicable to just about any loyalty program design effort. If you want to read the case study, click here.

But you can do surprise and delight as one-off ideas, they don’t have to be “programs”; it’s the timing that is critical.  You want to do the events near life-cycle events.  Certainly the first one is the initial order – what is in the box, how is it packed, how easy is it to put together, etc.  After that, things like just calling a customer to tell them you appreciate their biz, sometimes silly stuff like “1st purchase anniversary” cards – which can also be used to smoke out customer service / product problems – are effective.  Anything you think will “surprise and delight” the customer.  Use control groups and look for lift in sales or a slowing of defection, just like you would with any direct marketing program.  If you can synch these promotions to known LifeCycle issues, all the better, because your marketing actually surprises and delights the customer.

For example, lets say you have a segment of top 20%, very valuable customers.  You notice there is a pattern, probably Latency or Recency based, in this type of customer.  So you anticipate and make some kind of offer which really lines up they what he would do anyway – but with a twist.  

Say people in this segment typically upgrade service 6 months after initial purchase.  You anticipate this and send a promotion that says “if you upgrade XXX to ZZZ you can also add this related service or product for 25% off”.  This way you don’t subsidize the planned purchase, but you augment with related service / products and drive the transaction ticket higher.  Or you give something really soft, like extending the warranty or months of service by a year if they upgrade – but they have to upgrade to a higher level than what is normal for the segment.  

Surprise and delight  – for the customer.  Not for you, because you knew the upgrade was going to happen anyway, you made it a surprise and delight for the customer – and made a couple bucks at the same time.

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