Amid the overwhelming flow of information in our digital world, there are a few keepers. Chris Brogan is one of them. I don’t know him personally, don’t have any affiliate relationship with him, and am not trying to get him to follow me on Twitter. I just like to read his stuff.

Chris wrote about his approach to New Year’s resolutions in this post, instead choosing 3 words that would help him to focus on what’s most important for the year ahead. I like the idea and am still trying to reduce my personal list of keywords to single digits. Meanwhile, I found it easier to create a 3 word list for Loyalty Marketing in 2012 and wanted to share it for your consumption and discussion.

Let me know what your 3 words would be for this year and why you chose them. I’ve started a discussion on our Customer Strategy Network Facebook page and in a few LinkedIn groups where you can participate. If you prefer, just leave comments here on Loyalty Truth.

Data

Loyalty marketers have been collecting customer data since the dawn of the business. To a great extent, that data has been under-utilized and this shortcoming threatens the trusted relationships we have with our customers. Consumer 2.0 is well aware that the portfolio of transaction and personal data that defines self is highly valuable to corporate America. Though we’ve been talking about increased leveraging of data as one of the biggest opportunities in Loyalty Marketing, 2012 might be the year that it happens.

Selecting Data as one of my 3 words for 2012 puts me in pretty strong company as I recently listened to Rupert Duchesne, Chairman of Aimia, speak about Data being the “New Oil”. And, just last week, I read that Foursquare was making public its intent to put its data to work as a tool for growing its business in 2012.

Mobile

The mobile handset has been predicted by many to become the central platform for social shopping and payments. The Google Wallet was announced last year and payment/loyalty plays including Square, Dwolla, and LevelUP seek to change consumer behavior and set a new mold for how we shop and pay.

Banks are pledging to make better use of mobile applications to bring banking products closer to the customer, in the process redefining how we view the retail banking customer experience. Groupon has responded to criticism that it is impotent beyond stimulating customer acquisition and trial and has introduced Groupon Rewards as well as partnering with Foursquare to find synergy in location based marketing and the daily deal.

The convergence of loyalty, payments, and the mobile handset will continue at a faster pace during 2012.

Social

We invested significant time gathering information and creating position papers on Social Loyalty, Social CRM, and Social Shopping during 2011. Clients as well as conference delegates wanted to absorb as much as they could on these topics and the buzz made us question if everything involving “loyalty” and “social” might dissolve away as just the latest marketing fad.

It’s not going to happen. In fact, 2012 will be the year when many brands put their PowerPoint presentations on the shelf and move to implement more social channels into their customer strategies. Consumer 2.0 is making purchase decisions differently than before and will be delighted by elegant ways to locate and evaluate local shopping offers via their mobile device. The social aspect comes in the form of interactions via social shopping networks like Zavee.com or by engagement with game-fueled loyalty programs where referral and recommendations lead visibly to purchase.

Three words that will define Loyalty Marketing in 2012: Data, Mobile and Social. I’m sure you can make an argument for others.

Let’s hear it.

In the final part of our Three Part interview series with Rob Markey, Bain & Company, we share insights from Mr. Markey on how to better execute surveys, whether to introduce incentives to improve survey responses, and get his opinions on whether NPS or other metrics will eventually influence share prices on public exchanges.

Oh yes, we’ll also get to the bottom of whether there really is “just one question” to get a grip on customer loyalty.

Many firms have response rates to surveys in the single digit range. Some respond by offering incentives to drive up response to their NPS surveys. Mr. Markey stated that “at Bain, this is evidence that you are not earning your customer’s feedback”, adding that “offering incentives is almost always a sign that a flaw exists in the customer feedback process”.

Listening to the results that do come in and making change on the front lines will earn your way to 30-40% response rates over time. Rackspace, one of the examples cited in The Ultimate Question 2.0 gets above 60% response rates to its surveys. “Here’s why” stated Markey “Rackspace earned participation in its surveys because they are meaningful to the customer”.

According to Markey, being satisfied with a 5 – 15% response rate is dangerous. Business should seek the root cause for low response rates and test surveys across groups that are weighted to promoters, passives and detractors. “Detractors are less likely to respond to a survey than prompters” said Mr. Markey, and “bias needs to be rationalized through testing”.

When I asked Mr. Markey if measures of customer value predicted by NPS or other scores would one day influence share price and market capitalization, he said that “it was already happening.” Though he cited confidentiality, Markey stated that “an average category leader in NPS scores grows at least 2X competitive growth rates”, adding that “several nationally recognized investment firms pay attention to NPS as an indicator of companies they would invest in”.

I couldn’t let my time with Rob Markey end without asking one big question: Is there just one question that companies can use to predict and / or measure customer loyalty? Markey explained that “when done on an apples-to-apples basis, NPS correlates closely with other measures such as satisfaction, but that “if the goal is to find the best statistical predictor of individual customer behaviour, most likely a multi-variable index will be superior to any single metric index”.

For example, the investment firms cited earlier use NPS as a predictor of value, though it’s not the only metric considered. Having said that, Markey added that “in many instances, NPS will replace traditional customer satisfaction metrics, mostly for the practical superiority of the NPS system”.  “Not a single loyalty leader measured their way to success” said Markey, adding that “it’s hard to get employees fired up about some metric”.

For Markey and Reichheld, the metric is the starting point. It is the metric that provides the compass to navigate the path forward, but it is the system that is the path itself. The victory in where they have arrived with “The Ultimate Question 2.0” is that the system has been created and business now has a reliable option to predict customer loyalty and to help bring continuous improvement to the enterprise.

My interview with Rob Markey about the new book, The Ultimate Question 2.0 “How Net Promoter Companies Thrive in a Customer-Driven World”, continues today with a closer look at how the “score” has evolved into a “system”.

The book includes a number of case studies ranging from Charles Schwab to Apple Retail to The Progressive Group of Insurance Companies. One common element of execution employed by each firm was to include a short-cycle, closed-loop feedback mechanism that turns survey results into usable business intelligence that front-line managers and employees can use to better serve customers.

Mr. Markey emphasized the importance of collecting accurate NPS survey scores but also to determine the root cause of interactions that leads to people becoming “promoters” or “detractors”. Was a price too high? Could a better deal be found at a competitor or did the competitor allow more flexibilities in service agreement rules? Whatever the reason, it is essential to be able to deliver feedback from customers to the employees most directly responsible to deliver enhanced customer experience. Through the accumulated experience from working with multiple companies across varied industries, Markey and Reichheld were able to dig deeper and understand practical methods to create change.

Markey stated “Everyone in the enterprise managing a customer touch point needs to build greater understanding of where they stand with their customers, whether front-line personnel or executives… for real change to take effect, business people have to translate elements of feedback into usable and actionable items that customers can understand.”

The second critical element Markey noted was the ability to connect NPS improvements to robust economics at the enterprise level. Markey explained “managers must be able to demonstrate what it’s worth to improve NPS scores versus the competition, or the value of changing a detractor to a promoter”.  This is aspect of developing a learning environment through working with multiple enterprises that has helped to transform the score into a system.

Markey capped off this line of thinking by sharing three essential elements to successfully putting NPS to work in your business:

1. There must be a reliable way to evaluate and sort customers and employees as promoters, passives, or detractors. This evaluation must then lead to identifying customer behaviors that can be analytically tied to positive business outcomes
2. An organization must create a fast-cycle, closed-loop learning process to deliver survey as well as verbatim results to customer-serving personnel. The organization should engage in “deliberate practice” over time to demonstrate to customers that they are listening to their critiques and expression of preferences.  This could be the most distinguishing characteristic of the three elements as traditional customer satisfaction research is anonymous and misses the opportunity to establish two-way communication with customers
3. The commitment to earning the loyalty of customers must be a top priority of the organization and be supported from the top down. This commitment must be embodied in daily actions and NPS must have a high level visibility with employees. Firms putting their weight behind NPS initiatives in a sincere manner earned the best results.

When asked about finding the balance between focusing on the customer and enabling employees / associates to deliver critical feedback, Markey responded “low employee engagement is impossible to coexist with high customer NPS”. He continued “a company may create a temporary market advantage through innovation or pricing, but it is difficult to sustain high levels of scores without employee engagement”.  “It’s not just the right thing to do”, added Markey, “it’s necessary to rise above the competition”.

Interestingly, only about half of the firms encountered by Bain & Company over the past 5 years working with NPS take such a position. Reflecting on the recent economic downturn, Markey cited that “the companies which entered the global financial crisis with higher reserves of goodwill and higher NPS experienced lower dips than the general marketplace”.

In the final part of the series later this week, we’ll share some interesting tips from Markey on successful survey execution and find out if there really is “just one question” that can be used to determine customer loyalty levels within a business.

In a previous post I mentioned that I was the beneficiary of a serendipitous moment in which I was given the opportunity to interview Rob Markey, a partner in Bain & Company’s New York Office and head of the firm’s global Customer Strategy and Marketing practice.

The topic was a new book, The Ultimate Question 2.0 “How Net Promoter Companies Thrive in a Customer-Driven World”, which Markey co-authored with Fred Reichheld and published in September. The book was a revised and expanded edition of The Ultimate Question, the original book published in 2006 which introduced the world to the Net Promoter Score (NPS).

When I spoke with Mr. Markey, he was quick to shift my focus from “book review” to developing an understanding of how NPS had evolved from a scoring metric to a system which had developed through the collective experience of the thousands of companies working with NPS since 2006. With so much to talk about in a brief period of time, I have crafted a three part series of posts covering the interview, of which this is the first.

Having received a copy of Fred Reichheld’s book, The Loyalty Effect upon walking into the doors of Frequency Marketing in 1999, I was more than familiar with Reichheld’s ground breaking thought that “loyalty” had to be formed with top-down strategy that included not just customers, but also employees, shareholders, even suppliers.

This timeless path to creating sustainable competitive advantage has been followed by thought leaders in the loyalty marketing industry, though much of what we see in the market today known as loyalty or rewards programs have fallen short by focusing on customers, while giving a disappointing hand-wave to the interests of the other constituents.

There are voices in darkness supporting Mr. Reichheld’s original thesis. One industry group has emerged, the Enterprise Engagement Alliance, which is “dedicated to the concept that engagement is an enterprise-wide endeavour that begins with people and ends with profitability”. The organization’s principle mission is to support research and education to help brands “make the connection between engaging people in business and long-term financial performance”. Colloquy has a renewed focus on Enterprise Loyalty, and I have taken my stand by preferring to frame our work for clients as delivering Customer Strategy. In my opinion, every organization needs a well planned and executed Customer Strategy, while not all need a “Loyalty program”.

Markey started off by sharing that his initial interest in this topic came through reading Reichheld’s 1990 article “Zero defections: quality comes to services”. Markey’s curiosity to identify tools for making decisions on behalf of customers instead of just shareholders led him to Bain and Company and he has been working closely with Mr. Reichheld ever since.

Markey told me that this 20 year quest has led him to adopt a simplified notion of the ultimate objective – to transform the golden rule from something nice to say about customer relationship management, to something that can be implemented and drive tangible results to a business. Working with Reichheld, a system of thought was developed that, if implemented as intended, would lead to sustained market improvement and to making good decisions to earn customer loyalty.

When asked about the central point of the new book, Markey explained that the 2006 “one big question” book was meant to introduce the thesis, explain the metric construct, show how to measure, it and lay out the argument for adoption. In essence, it was a starting point.

When asked what he had learned in the years between 2006 and today, Markey pointed to the fact that Bain & Company has worked with dozens of companies around the world to implement NPS in their operations and have seen tremendous results returned, from lower churn rates, lower acquisition costs, and improved sales and profitability per customer.

In short, the “score” had become a “system” with a solid methodology to help firms guide implementation and enough market feedback to confidently predict results. Part Two of the three part series will cover how the systems works as well as share the three essential elements to successfully putting NPS to work in your business.

Editor’s Note: Frequency Marketing has since become LoyaltyOne, while The Loyalty Effect still sits on the shelf in my office, dog-eared as all good books should be.

Sometimes you work really hard for a small break. Other times serendipity shows its face and good things fall into your lap.

I’ve been lucky over the past month. First, I had the opportunity to interview Rob Markey, co-author with Fred Reichheld of The Ultimate Question 2.0, an update of the first version of the book which familiarized us with the Net Promoter Score. The book hit the market this month and you can find a good review of it on the Kobie Marketing blog, The Muse.

During October, Loyalty Truth will be featuring a three part blog series covering my interview with Mr. Markey. Stay tuned as I think you’ll find his comments interesting as well as see how Net Promoter Score has developed from a scoring metric to a practical management system that has been implemented with good results by many well-recognized brands.

The second piece of good fortune was my attendance at the ShopperTech Lead Marketing Conference. Al McClain and the good folks at RetailWire organized an afternoon of panels and I was able to participate in a discussion of loyalty marketing with BJ Emerson of Tasti D-Lite, Dan Frechtling of DS-IQ, and Bill Nasshan from Bi-Lo supermarkets. An executive summary of the conference can be found here.

To my surprise, one of the keynote sessions was given by Matthew McNerney and Tim Keiningham of IPSOS Loyalty. The two presented a new measure of customer loyalty, The Wallet Allocation Rule, which will be profiled in October in the Harvard Business Review.

The Wallet Allocation Rule correlates customer loyalty to share of wallet, and the executives from IPSOS report that “the correlation between a brand’s Wallet Allocation Rule score and its share of wallet was greater than .9 – a perfect correlation score being 1.0″. The score takes the relative ranking of competitors into consideration and is proposed as a new way to tie customer loyalty scores to wallet share and ultimately profitability.

Let’s give the marketplace time to absorb the IPSOS article in HBR (they are said to have the cover) and the new book by Messrs. Markey and Reichheld. The ensuing debate over how best to predict customer loyalty through these two scoring metrics will be one to watch.

Breakage is the classic crutch of loyalty marketing financial models. As I mentioned here in a recent post, attitudes towards breakage are changing, both from perspective of the loyalty supplier community and consumers.

Brands aren’t missing the boat on breakage, in fact recent moves by Delta Airlines and Points.com over the past two weeks signal additional recognition that the accrued value in loyalty programs is not a ’shiny object” to tease consumers with, rather it is truly an alternate currency that people expect to have liquidity and be able to convert for value.

Points.com announced that it is teaming up with Paypal to allow its Aeroplan® miles, American Airlines AAdvantage Miles® and US Airways® Dividend Miles® to convert into cash in member’s PayPal accounts. It’s one thing to flush your points for questionable value in the form of magazine subscriptions. I’m sorry, but I just don’t call that a good value proposition for most people.

It’s quite another matter to be able to convert miles into cash. In concept it’s a great enhancement for Points.com and a boon for PayPal. The crucial driver of success for the tactic will be the exchange rate set between the two currencies. At this point I’m not privy to the exact exchange rate but understand it will be distinct for each airline. Some consumers are already crying about lack of value and we’ll have to keep a watchful eye here. On the surface, it’s a great idea.

Frequent Flyers didn’t fare badly this week either. Delta Airlines announced that mileage no long expires in its SkyMiles frequent flyer program. This change could be viewed in two ways. The skeptic will contend that infinitely available miles will just make a seat capacity problem that frustrates most frequent flyers even worse. Additionally, it might seem to represent another step in making FFP’s tougher for the airlines to manage from a financial standpoint.

The optimist will opine that eliminating mileage expiration will spark brand affinity for Delta in the short term and, if combined with some additional redemption options (can Delta play in the PayPal arrangement or come up with some other ideas?) will increase customer engagement over a longer term.

I’ll weigh in as an optimist. With our estimates of Consumer 2.0 at or near 150 Million US consumers, brands that shift the emphasis of their rewards programs from breakage to engagement will come out on top. Consumer 2.0 wants attainable rewards on a more liquid basis. Conversion to cash through Social Shopping, redemption at point-of-sale, and Social Giving are all options that this group finds attractive.

It’s good for the industry and for the consumer when we witness brands encouraging engagement rather than hoping for breakage.

Cartera Commerce, until recently known as Mall Networks, and Vesdia, long ago known as Baby Mint, have announced a merger that will change the supplier side of the merchant funded loyalty landscape.

Or will it?

Like my reported allergy to penicillin, someone told me long ago that there was no such thing as an original idea. I’m not sure if either statement is true, but if the latter really is the case, then the U.S. Patent office should close its doors and all the filers of new business process patents should just focus on better execution rather than fencing in their intellectual property from others.

Merchant funded loyalty was an “original idea” only about 6 years ago. In that distant and ancient age, Vesdia and Affinity Solutions were the two pioneers who laid claim to birthing the concept and in my book, it has been Affinity Solutions which has best developed and executed the concept over the years.

Merchant funded loyalty programs were born of “the necessity” also known as the Walmart litigation against Visa and MasterCard. That litigation was settled in 2003 and ultimately caused the associations to pay Walmart and other retailers enormous sums of money.

In a uniquely 21st century evolutionary pattern, merchant funded programs were deployed rapidly across the debit card portfolios of major card issuers in the U.S. and multiple competitors joined in the game. Within a short 4 years or so, merchant funded programs evolved from innovative and industry-saving strategy to table stakes for savvy debit card issuers.

That’s good for business, but some trimming of the competitive group was inevitable as pricing and demands for innovation placed pressure on the supplier group.

The re-branding of Mall Networks to Cartera is partial acknowledgement that suppliers needed to expand their branding and capabilities set. The merger of Cartera and Vesdia is further testimony to the ongoing consolidation in this sector.

With the Card Act of 2009 implemented last year, and the Durbin Amendment on the way, card issuers will continue to pay attention to providers which deliver valid consumer value propositions for their cards at a manageable cost. There is plenty of room for growth in debit card rewards and in the broader rewards and loyalty markets.

Due to my affiliations throughout the supplier side of the loyalty marketing business, I will hold further comment on this merger for the moment.  Let’s just agree that this space deserves watching, and the significance of this merger will be better understood as 2011 continues.

Cartera Commerce, until recently known as Mall Networks, and Vesdia, long ago known as Baby Mint, have announced a merger that will change the supplier side of the merchant funded loyalty landscape.

Or will it?

Like my reported allergy to penicillin, someone told me long ago that there was no such thing as an original idea. I’m not sure if either statement is true, but if the latter really is the case, then the U.S. Patent office should close its doors and all the filers of new business process patents should just focus on better execution rather than fencing in their intellectual property from others.

Merchant funded loyalty was an “original idea” only about 6 years ago. In that distant and ancient age, Vesdia and Affinity Solutions were the two pioneers who laid claim to birthing the concept and in my book, it has been Affinity Solutions which has best developed and executed the concept over the years.

Merchant funded loyalty programs were born of “the necessity” also known as the Walmart litigation against Visa and MasterCard. That litigation was settled in 2003 and ultimately caused the associations to pay Walmart and other retailers enormous sums of money.

In a uniquely 21st century evolutionary pattern, merchant funded programs were deployed rapidly across the debit card portfolios of major card issuers in the U.S. and multiple competitors joined in the game. Within a short 4 years or so, merchant funded programs evolved from innovative and industry-saving strategy to table stakes for savvy debit card issuers.

That’s good for business, but some trimming of the competitive group was inevitable as pricing and demands for innovation placed pressure on the supplier group.

The re-branding of Mall Networks to Cartera is partial acknowledgement that suppliers needed to expand their branding and capabilities set. The merger of Cartera and Vesdia is further testimony to the ongoing consolidation in this sector.

With the Card Act of 2009 implemented last year, and the Durbin Amendment on the way, card issuers will continue to pay attention to providers which deliver valid consumer value propositions for their cards at a manageable cost. There is plenty of room for growth in debit card rewards and in the broader rewards and loyalty markets.

Due to my affiliations throughout the supplier side of the loyalty marketing business, I will hold further comment on this merger for the moment.  Let’s just agree that this space deserves watching, and the significance of this merger will be better understood as 2011 continues.

What do chocolate, red wine, credit cards and the internet have in common?

Each offers benefits or represents risks for human beings. And, if you read the results of consumer research on a regular basis, you’ll find that each fills the role of hero and villain depending on which survey results you read.

If you follow nutritional news, you probably have seen studies that indicate on a variable basis that chocolate, red wine and many other food items can yield long term health benefits or cause irreparable harm. Sometimes the more we read, the less sure we can be of what to believe.

The problem is not data. Data Rocks. But the assumptions by which data is collected and interpreted has to be carefully scrutinized for accuracy, sample size, and bias.

A short segment on National Public Radio today got my attention as Ron Shevlin of the Aite Group was interviewed regarding news from the Federal Reserve Bank of Chicago that reward credit cards can cause people to go further into debt.

While the premise of the NPR story makes for great headlines, Mr. Shevlin quickly pointed out potential weakness in the way the study was conducted. Bottom line: be skeptical about survey results which generate breath-taking headlines until you know the whole story.

The second item this week that caught my attention was a story in the Wall Street Journal about the potential linkage between the risk of prostate cancer in men and the length of their index finger. I won’t go into the details as you can read it here.

The most important line in the story for me was this one: “Caveat: Participants self-reported their finger lengths, raising the possibility of error.”

In other words, qualitative surveys based on self-reported information may generate big headlines but are highly vulnerable to one caveat buried below the page-break.

The linkage between these stories and the efforts of marketers to understand how consumers make purchase decisions is clear. We can collect primary research all we want via focus group or survey, but we are wise to validate what people say they will do by transaction data proving what they actually did.

Hanifin Loyalty is adopting a renewed focus on data for the coming year. Data is plentiful in the storehouses of major brands and may be the least leveraged asset in the enterprise. It’s time to fulfill the promise of the data we have collected.

We will soon introduce service offers aimed to optimize the value of data brands collect through loyalty and rewards programs, and to make sure that your data generates business results, not just headlines.

Let’s all resolve to use our data in 2011 to drive business results!

What do chocolate, red wine, credit cards and the internet have in common?

Each offers benefits or represents risks for human beings. And, if you read the results of consumer research on a regular basis, you’ll find that each fills the role of hero and villain depending on which survey results you read.

If you follow nutritional news, you probably have seen studies that indicate on a variable basis that chocolate, red wine and many other food items can yield long term health benefits or cause irreparable harm. Sometimes the more we read, the less sure we can be of what to believe.

The problem is not data. Data Rocks. But the assumptions by which data is collected and interpreted has to be carefully scrutinized for accuracy, sample size, and bias.

A short segment on National Public Radio today got my attention as Ron Shevlin of the Aite Group was interviewed regarding news from the Federal Reserve Bank of Chicago that reward credit cards can cause people to go further into debt.

While the premise of the NPR story makes for great headlines, Mr. Shevlin quickly pointed out potential weakness in the way the study was conducted. Bottom line: be skeptical about survey results which generate breath-taking headlines until you know the whole story.

The second item this week that caught my attention was a story in the Wall Street Journal about the potential linkage between the risk of prostate cancer in men and the length of their index finger. I won’t go into the details as you can read it here.

The most important line in the story for me was this one: “Caveat: Participants self-reported their finger lengths, raising the possibility of error.”

In other words, qualitative surveys based on self-reported information may generate big headlines but are highly vulnerable to one caveat buried below the page-break.

The linkage between these stories and the efforts of marketers to understand how consumers make purchase decisions is clear. We can collect primary research all we want via focus group or survey, but we are wise to validate what people say they will do by transaction data proving what they actually did.

Hanifin Loyalty is adopting a renewed focus on data for the coming year. Data is plentiful in the storehouses of major brands and may be the least leveraged asset in the enterprise. It’s time to fulfill the promise of the data we have collected.

We will soon introduce service offers aimed to optimize the value of data brands collect through loyalty and rewards programs, and to make sure that your data generates business results, not just headlines.

Let’s all resolve to use our data in 2011 to drive business results!