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Never Underestimate the Power of Customer Inertia

By Jeanne Roué-Taylor

“People maintain habits until they don’t.” This quote from American economist Richard Thaler is the customer loyalty marketer’s credo and underpins one of the core ideas of loyalty marketing resource allocation—to stay on the winning side of customer habits, you need to nudge and encourage constant, incremental growth and relationship development, whenever and wherever possible. On the flip side, you also need to sound the alarm and swarm when it appears customers have changed their habits in ways that aren’t mutually beneficial.

Marketing and Satisficing

Marketers have come up with the term “satisficing,” which isn’t widely used but perfectly explains this idea. Satisficing involves producing decisions that are good enough given the constraints present in a situation.

Studies consistently show that people tend to select the first option that meets a given need versus searching for the optimal answer. For marketers, by ensuring that each and every decision has an option that is good enough, customer relationship inertia is maintained. Inertia is everything.

The Power of Inertia

There are plenty of situations where keeping a customer happy involves satisficing—keeping the inertia going—rather than offering every possible solution, even if that means the perfect answer isn’t available. Never underestimate the power of inertia in customer loyalty success. While inertia and loyalty are different concepts that shouldn’t be confused, the nudges, influences, and rewards of customer loyalty marketing are an excellent way to maintain inertia.

To learn more about the success factors in customer loyalty, check out our webinar on the topic: Nudges, Influences and Rewards Part 2: Must-know Factors for Success in Retail Customer Loyalty.

Never Spread Your Marketing Spend Evenly

By Jeanne Roué-Taylor

Marketers shouldn’t spend their customer loyalty budget evenly across all channels or programs. Similar to other aspects of business, there are places where large ROI can be earned by spending disproportionately higher amounts—simply spreading efforts and funds evenly means missing out on those opportunities.

The High-Value Customers

Take as an example the disproportionate way high-value customers are followed and treated. We know that spending more to develop the relationship with a high-value customer not only creates a stronger connection, but also provides marketers with much better knowledge of preferences, propensities, and other insights.

A better relationship with a high-value customer has significant benefits beyond simply higher lifetime customer value. With better information, marketers can far more easily pick up important signals that include life-changing events and an increase or decrease in the frequency of visits. When a high-value customer’s normally stable signals change, there’s an opportunity to solve a problem or find a mutual benefit from the change.

In some cases, a quick response to those signals can save the relationship from moving toward lower levels of loyalty or customer attrition.

Spending disproportionately is the only way to be sensitive to the relative value of different channels and programs. It’s the only way to get the most bang for your marketing buck. To learn more about other factors of success in retail customer loyalty, check out our webinar on the topic: Nudges, Influences and Rewards Part 2: Must-know Factors for Success in Retail Customer Loyalty.

Marketers Need to Choose Their Defaults Wisely

By Jeanne Roué-Taylor

There’s a remarkable (and very predictable) fact about the human race that a great marketer accepts as truth: people from all walks of life usually take the default option when offered multiple choices. This fact makes it very important to choose default choices for your customers very intentionally, as it’s essentially one of the best “free” ways to influence customer behavior in your favor.

Consumers Accept Defaults

As an example, retailers have learned over time that the average consumer doesn’t think as much about decisions as you might expect. If you put a decision in front of them, they’ll often simply accept the default option because they are uncertain about their choice.

Applying this idea to something we all know, a common decision offered to a customer is how they prefer to communicate back and forth with a particular brand. Email is typically the default option and also the one chosen, or “accepted,” most often by consumers. This is no accident, and most marketers prefer to communicate by email. While important in retail, this concept is applicable everywhere choices or decisions are offered and responses can be influenced.

Looking Around the Industry

Surprisingly (or not), consumers are even more likely to accept more expensive options when presented as the default. Dell, Apple, and other PC manufacturers know well that customers will upgrade to more expensive options when those options are presented as the default choice on a list of options. Think of the last time you ordered a laptop and how often the larger hard drive was X dollars more and was the default choice. Having a brand-preferred choice already selected is momentum that takes effort by the customer to overcome.

You probably haven’t set up customer choices with this in mind, and should audit the places where choices are offered to see where defaults can be chosen more wisely. The positive results from restructuring default choices can be significant.

To learn more about other factors of success in retail customer loyalty, check out our webinar on the topic: Nudges, Influences and Rewards Part 2: Must-know Factors for Success in Retail Customer Loyalty.

What Marketers Can Learn From the Gaming Industry

By Jeanne Roué-Taylor

Study after study shows that our brains love small, predictable rewards more than occasional, large rewards. This principle is on prominent display in the gaming industry where slot machines far outnumber table games in any casino. Those same slot machines, with small stakes and small rewards, show up in gaming industry financial statements as significantly more successful than large-stakes tables. What makes that possible?

Small, Frequent, and Predictable Rewards

The significant skewing of real estate toward slot machines happens because gaming companies know that frequent, small, predictable rewards with unpredictable timing are precisely what our brains crave. Known as a variable ratio schedule of reinforcements, casinos know that customers respond better to a “…schedule of reinforcement where a response is reinforced after an unpredictable number of responses.” This pattern of expectation creates a high, and very steady, rate of responding and a very successful industry.

This principle is part of the allure of Facebook and other social media sites—once sites have a critical mass of active people providing frequent, yet unpredictable, small bits of content, users feel rewarded for continually checking the site and app. It’s enough to keep people coming back repeatedly, thereby increasing the content in a virtuous cycle. Just as with slot machines, these sites delight consumers when rewards average out every n times, but not always on the predictable nth response.

This “predictable unpredictability” is equally successful in marketing. By continually varying the level or frequency of a promotion or consumer benefit so that it still averages out over time, brands appeal to the consumer brain that loves the small, predictable, yet unpredictable, reward. In an increasingly noisy world, this practice very effectively draws attention and repeat visits to stores, kiosks, and Web and mobile sites. It shows up in the bottom line of companies that understand this just as it does for the gaming industry.

To know more about this and other success factors in customer loyalty marketing, check out our Nudges, Influence and Rewards webinar series.

Marketers, Immerse Yourself in the Data!

By Jeanne Roué-Taylor

“Immerse yourself in the data,” doesn’t mean “Be aware of the data,” or “Follow the reports.” It means “Really immerse yourself in the data,” by digging in and finding something new to learn each and every day. Make it a relentless habit for a very good reason—as the world changes, marketers can no longer wait a month, a week, or even a few days to know the ebb and flow of their business. There’s a new need to monitor what’s happening in all aspects of the business so that even daily results can be forecasted with a high degree of accuracy.

Immerse Yourself

Immersing yourself is the goal, but it has to start somewhere, so start with visualization. There are great tools in the market, including TIBCO’s own Spotfire, that are the best ways to spot trends and to find patterns that can’t be seen in a spreadsheet or report.

The patterns you should be seeking include anomalies that are begging for a cause to be figured out. Only when the cause of a pattern is known can a marketer be practical about taking remedial action now, instead of after a problem presents itself.

Real-Time Modeling

Another key factor is real-time modeling. The traditional approach has been to have a server churning somewhere that reruns customer models periodically, as in weekly or even monthly. A great deal of investment has gone into a Hadoop (or Hadoop-like) approach, but it ends up being too slow to allow marketers to benefit from being truly immersed in their data. It won’t allow a real-time view of what’s happening in the business or for constant learning and correction. A far better approach is have data flow through in-memory, not in a database, and as it arrives. This allows remodeling and re-scoring customers in the moment, which provides the capability to make minute-to-minute changes that affect customer-by-customer interactions.

In a world with so much information moving so quickly, immersing yourself in the data is the only way to stay ahead of the deluge and to pick out the signal from the noise. Even more, the market is moving inexorably toward Fast Data. It’s the compliment to big data and how we describe the in-flight information that helps marketers make better decisions, faster.

To learn more about the success factors of success in retail customer loyalty, check out our webinar on the topic: Nudges, Influences and Rewards Part 2: Must-know Factors for Success in Retail Customer Loyalty.

Do You, Your Boss, and Your Boss’s Boss Agree on Your Metrics for Success?

By Jeanne Roué-Taylor

How you define success determines how you evaluate strategy and ongoing operations. This is such a fundamental point that we make it over and over again. It’s that big. Being crystal clear on what matters ensures everyone is focused on the same objectives. What’s more, the perception of your personal success depends on it.

Aligning Customer Loyalty Marketing Metrics

This comes to life when you consider a basic question: Which is more important, customer visits or customer retention? If you put your faith in visits by defining success through revenue lift over your control group, you’ll work to maximize your campaigns, potentially marketing to the same active customers over and over to keep them active.

On the other hand, if you define success by overall retention, you begin to look at your moderately active customers and ways to reactivate your declining customers. This may have a lower ROI than revenue lift in the near term, but if you’re looking at retention rate and lifetime revenue (and your boss evaluates you on this), you’ll be better off in the long term because you spent money in the right places to achieve the agreed-upon definition of success.

Do you, your boss, and your boss’s boss agree on your metrics for success? You clearly need to.

Getting Customers to Cross the Aisle

As a great example, one of our top retail customers had a well-aligned definition of success that was less about retention or visits, but instead was laser focused on cross-category selling. The company knew from its own experience that its customers had a higher lifetime value if they bought from multiple key categories. The whole approach—from a program structure to the content and engagement points—was designed to drive customers across the aisle to buy from other key categories. Cross-category sales is a tremendously successful success metric for them and has a big impact on the company’s revenue. If the company had agreed, instead, on other ways to measure success, its program would have been perceived as a failure very early on.

Gaining organizational alignment around key metrics isn’t an easy thing, but the benefits can’t be stressed enough. Agreement on what constitutes success will give you the backing to decide where to spend the next dollar of your marketing budget and the means to continue to spend, or shift spending, based on the outcome. An aligned organization is a powerful force.

To know more about factors for success, check out our webinar, Nudges, Influences and Rewards Part 2: Must-know Factors for Success in Retail Customer Loyalty.