Lack of belief in program ROI is the mother of all pain points—as identified in a survey of our Loyalty Storm Trackers
Early last Fall, COLLOQUY’s radar began to detect loyalty marketing storm clouds not on the horizon, but perched over us—raining, and raining hard. Those clouds are drenching signals that effective and efficient execution—getting things done—seemed to be growing much more difficult. As industry fore – casters, we decided to address the threatening problems and their solutions by conducting the 2011 COLLOQUY Loyalty Practitioner Study, an online survey of loyalty marketers who themselves are facing the darkening clouds.
This is the first in a series of COLLOQUY articles that will draw on the survey’s results to focus on overcoming implementation challenges.
While the survey was open to all and therefore “unscientific” as projectable research, it provided us with enough of the right feedback from front-line loyalty leaders to understand the major implementation hassles they face. Nearly half of the respondents were senior executives in their companies (SVP on up) and the great majority who identified their company’s industry segment came from Financial Services, Retail, Travel and Hospitality, or Telecommunications.
We developed the original list of two dozen challenges to detect possible issues within four acknowledged keys to effective execution: strategic clarity, effective and efficient systems and processes, cultural alignment, and reliable performance measures. We asked respondents to select up to three of their top pain points from that list, such as “Outmoded IT systems at the point-of-sale” or “Inadequate staffing to implement well” (both of which made it into the top ten identified).
It may be an all-time classic business cliche?, but it’s quite true that an average strategy with great execution trumps the best strategy with poor execution. Flexibly and quickly adapting to changes in the regulatory, consumer, or category environments through great execution just may be the root of sustainable competi – tive advantage. That’s why we’ll be addressing the execution challenge over the next few issues of COLLOQUY.
Pain in the assets
Our 2011 Loyalty Practitioner Study identified 10 top challenges across each of the four keys to effective execution. Here’s a roll-up of those themes:
1. “Everything Is Beautiful” Prioritization: A third or more of respondents raised four prioritization challenges to the top ten: Too many competing priorities across the organization, leading to inadequate budgets, staffing and resources for loyalty to get things done speedily and effectively.
2. “Herding Cats” Misalignment:
Just over a quarter of respondents pointed out that inadequate alignment with and focus on customers and poor cross-functional coordination were blocking effectiveness across critical customer touch points.
3. “Rocket Surgery” Processes and Systems: Roughly a quarter of respondents cited outmoded POS systems and the difficulty and high cost of implementing “soft” benefits as top challenges.
4. “Doubting Thomas” Metrics:
30% of survey respondents said that a perception of high cost- to-benefit for loyalty programs and poor ROI relative to competing investments was perhaps causing a lack of support from the top for program innovation.
Over many years as a loyalty practitioner, during which my teams and I had to prove and re-prove the attractive ROI on loyalty to a series of new executive teams, I learned that none of the first three problems above stand the slightest chance of being solved until the fourth— effective, convincing ROI measurement—is addressed. So that’s where we’ll focus this first article in our “Loyalty Storm Trackers” series on execution.
Blocking and tackling
All these execution challenges have a common root—lack of belief in the superior money-making power of the loyalty program. If your program is being blocked by too many competing priorities, or a lack of sufficient budget, resources, or cross- functional alignment, you must make it crystal clear that your company has few other investment opportunities on the table as attractive as your customer loyalty program. Solve this problem, and you go a long way to solving the others, too.
We will tackle the measurement challenge from the perspective of a mature program, but these principles also apply if your company is considering a new loyalty program launch.
Measure the right thing—economic value.
Your shareholders, customers, top leaders, and you can agree: value is created when you deliver a sought- after benefit greater than its cost and better than competing alternative investments. Your loyalty program will get funded properly if your CFO and CEO believe that it delivers that value. As for benefits sought, companies’ loyalty strategies are shaped by many different needs, but all are united in the common need to boost incremental net margin.
Bottom Line: Are you measuring value?
Gain control of controls.
True control groups isolate a percentage of your customer base and remove the loyalty marketing stimulus from their experience. That way, the true effects of the loyalty program can be calculated apart from everything else affecting customers. The problem for mature programs is that they typically do not maintain permanent control groups.
Confronted with doubting Thomases and Thomasinas in the senior ranks, how then can a practitioner retroactively measure and underscore a loyalty program’s incremental benefits?
One major financial institution successfully confronted this challenge when an executive in the checking and savings account department questioned the generous rewards bonuses given credit card customers who opened new checking accounts. Lacking a true control group, the bank’s loyalty managers used a surrogate analytical technique to measure incremental lift, retention and cross-sell on other profitable product lines. They isolated a group of cardholders who opened checking accounts over a quarter, and then retroactively matched their behavior in the year prior with an identically performing group of cardholders who did not open checking accounts. They then compared the performance differential of those two groups in the year following the “new- account” quarter. This technique relies on the ability to identify non- member customers through other means besides the loyalty card. While not perfect, that technique convinced most skeptics, and had the additional benefit of demonstrating the analytical value of the customer transaction data.
Create true believers.
If you have no other means of proving ROI, and your program’s credibility is at stake, then consider the drastic step of re-establishing a true control group by shutting your program down in a small but representative geography, if possible. You can then measure both the immediate downside to the business there, as well as the ongoing incremental benefits in remaining markets against that control. In my experience, no one will want to do that, and the suggestion alone may shock your skeptics into belief.
And that leads to my concluding question: Do you believe that your program creates a benefit in excess of all its costs and, and delivers benefit that’s better than that from competing investments? If you have the facts to establish that the answer is yes, then sell your belief. Belief is all anyone buys anyway.
If you don’t believe because you lack the facts, go get them. If you can’t sell your own belief, why would anyone else believe?
There is another business cliche? that says you can’t manage what you don’t measure . . . convincingly.” Concentrate on building convincing incremental ROI metrics, and many of your other execution challenges will evaporate as assuredly as the rainwater from the marketing storm clouds when the sun breaks out.
