Trendy business buzzwords aren’t any fun until you form an opinion and seek feedback to get to the substance of the issue.

Customer Engagement is one of those terms that is being mentioned more frequently than Kim Kardashian was during the Super Bowl. It’s the 2010 version of “what’s hot, what’s new, what’s next?”

The question is, should Customer Engagement be treated as a new marketing sub-set, on par with Loyalty and Word of Mouth Marketing, or is it a concept that’s been around for quite some time and just happens to be a point of pain in the Relationship Value Chain (RVP) for marketers today?

Relationship Value Chain? That’s the term that my good friend and former Colloquy colleague, Kelly Hlavinka, coined almost 10 years ago. The experience of many at the once proud Frequency Marketing was that customer value increased across a spectrum of customer interaction. Link the points of interaction and you had a value chain that loyalty marketers could use to influence communication plans and allocate marketing budget dollars to encourage specific behaviors.

The RVP is similar to the “acquisition – activation – usage – retention” lifecycle marketing that credit card issuers have been using for years, but takes objectives down to a more granular level.

One example of a flow that constitutes a RVP:

• Awareness
• Response to Invitation
• Program Enrollment
• First purchase
• Multiple purchases in response to offers
• Redemption for Reward
• Response to Survey
• Response to Future Bonus
• Multiple Redemptions

No one has a lock on defining the steps in the chain as they should be customized to the business situation under review. Going to back to Customer Engagement, just where does it live in the value chain used as an example here?

Let’s look at a few steps in the RVP and see where, if accused of being “Engaged”, there would be enough evidence to gain a conviction!

Program Enrollment – Doesn’t everyone enroll in programs without much care for future interactions? I enroll in just about every program where I know the odds are that I’ll be back (by choice or force) and the offer looks worthy enough to give it a whirl. The only caveat is that I won’t sign up if the data collection hurdle is too high at the outset.

First Purchase – You’ve got my attention, but what makes you think I’m “Engaged”? I may be a cherry-picking consumer or have just satisfied a one-time need for your product or service. Not enough evidence to convict me as engaged at this point in time.

First Redemption – I’ve stayed around long enough to make multiple purchases over time – how else would I have qualified to redeem? But did you catch me in a cycle of life that won’t soon be repeated, or can you count on me to do it again? Engagement? We’re getting closer, some say “yes”.

Survey Response – I’ve transacted, collected, redeemed, and now I am willing to actually have a conversation. You’ve got my attention, but I am skeptical of what you will do with the information and if I will hear from you again. Does this sound akin to dating? Conversation is certainly an accelerator to engagement, but does not constitute the end goal itself.

Multiple Redemptions – Once I’ve completed the purchase/collection/redemption cycle more than once, I think you can count me as “Engaged”. The focus shifts now to retaining my interest, expanding the conversation, and developing more business as a result.

My take on Customer Engagement is that it describes an end objective that marketers hope to achieve through smart execution of a well designed data-driven Customer Strategy. If you try to define engagement as one of the individual steps, take Enrollment as an example, then what you are truly talking about is more tactical ala “how to create awareness for a program and convert interest to enrollment”.

It’s a step along the way, not engagement itself.

The Loyalty Truth on Customer Engagement is that it has been around for quite a while. The reason the topic has been deserving of the spotlight lately is that customers are increasing difficult to engage, not to mention retain.

What’s your take?

Loyalty Marketing has had its most notable successes in high frequency transaction environments. Think airlines, credit cards, gaming, hotels, and retail.

Where the sales cycles are extended or the opportunity for transactions less frequent, there have been fewer examples of success. Think insurance, subscription businesses like newspapers, cable, and wireless, and health care.

A revelation of Loyalty 201 is that data driven marketing will work in virtually any business model. Could it be that it was the self-limiting definitions of early Loyalty pioneers that created a self fulfilling prophecy that Loyalty only works in well defined settings and circumstances? To quote my Customer Strategy Network co-founder, Mike Atkin …. “Ballocks!”

To break free from these Loyalty cobwebs, the use of Customer Strategy as an umbrella term makes ever more sense to describe what this business is about. “Loyalty” whispers limitation, while “Customer Strategy” shouts innovation.

Today’s inspiring innovator is Safeway. The company has used incentives to reduce health care costs and its CEO, Steve Burd has become the leading visionary for health care reform from corporate America, having made nine or so trips to Capitol Hill just in 2009 to tell his story.  His rallying cry goes like this: “At Safeway we believe that well-designed health-care reform, utilizing market-based solutions, can ultimately reduce our nation’s health-care bill by 40%.”

The Safeway Healthy Measures program is voluntary and currently covers 74% of the insured nonunion work force. It gives employees a financial stake in the system and encourages healthy behaviors to achieve incentives.

As is common practice with many employers, Safeway requires employees to pay a portion of their own health care through premiums, co-pays and deductibles. Beyond that, the plan takes advantage of a provision in the 1996 Health Insurance Portability and Accountability Act (HIPAA), allowing it to differentiate premiums based on behaviors such as tobacco usage, healthy weight, blood pressure and cholesterol levels.

Ken Shachmut, Senior VP Strategic Initiatives, Health Initiatives, and Health Re-engineering at Safeway crafted Healthy Measures on the premise “that if people were given responsibility for their decisions, and there was transparency to the financial consequences to those decision, that they would choose to maximize both their health and their financial benefit.”

Safeway found motivation for its plan in the following health factoids which gave rise to the notion that encouraging behavior change could lead to healthier associates and big cost savings :

• 70% of all health-care costs are the direct result of behavior
• 74% of all costs are confined to four chronic conditions (cardiovascular disease, cancer, diabetes and obesity)
• 80% of cardiovascular disease and diabetes is preventable
• 60% of cancers are preventable
• More than 90% of obesity is preventable

The program is working by several measures:

• 78% of participants rate the plan as “good, very good or excellent”
• 76% of those surveyed asked for more financial incentives to reward healthy behaviors

While business struggles with soaring health care costs and the nation debates adoption of a nationalized health plan, Mr. Burd projects that if the US had adopted its approach in 2005, “the direct health care bill would be $550 billion less than it is today, almost 4 times the $150 billion that most experts estimate to be the cost of covering today’s 47 million uninsured”.

And what is the key incentive proven to be effective to help influence the positive behavior changes by the insured population? Mr. Shachmut explains it this way “we all know that just telling people to do the right thing is not effective … cash truly has been king in our program in the form of differential premiums. Our average difference under Healthy Measures is about $800 per year – for the employee and spouse, so almost $1,600 for a family.”

A measure of soft benefits are included, using “mutually-reinforcing programs available to all employees and spouses – access to the Fitness Center, discounted gym memberships, care management programs, health and wellness programs, information seminars to employees, and other related items.”

The success of Healthy Measures should be highly encouraging to US businesses and the citizenry at large. There is a path to managing our health care needs as a nation on a better basis. The program also lends insight into how the core elements of Loyalty 201 can be applied in the health care industry, breaking away some of the old cobwebs.

I feel better already!

Data driven marketing programs which unite tangible rewards and special benefits are meant to change behavior. And the outcome of the behavior change should render a business benefit for the company sponsoring the program and create feelings of affinity and goodwill from the people whose behavior changed towards the sponsoring outfit.

Practitioners call the resulting schema a Loyalty Program. if you prefer, you can call it a Rewards Program, Incentive Program, or Sales Performance Program. The name is less important than the definition. You could call it a “mileage give-away program” and I wouldn’t care (though that is a really awkward name that will not win you any awards).

I would care greatly if you commence the slide down the loyalty slippery slope by allowing “margin cannibalization” to sap confidence from your mission or think you can offer rewards to customers which you engineer to be unredeemable, whether through program rules or by the reward structure itself. These are characteristics of poorly designed programs, not the genre itself.

The days are gone when any customer will be tricked, bribed, or tempted into any behavior change that will benefit your business long enough to reach annual targets. Short term promotions meant to trigger impulse purchases or to shift share from a competitor will have effect until the promotion expires.

If you are content to string together multiple promotions, discounts, rebates, and give-aways and call it a marketing strategy, then you will find yourself running on a treadmill without a pause button. Stop the promos & you risk losing revenues and market share.

Successful loyalty programs are being more tightly integrated into Customer Experience than ever. If you can establish an in-store relationship worth preserving in the eyes of your customer, you can reinforce it with the loyalty program and leverage it to achieve multiple business objectives including acquisition, cross-sell, and retention. Without this integration, you risk the loyalty program being evaluated as a subset of price and more easily tossed aside as the result of a poor service interaction.

Some customers want to talk to you, others don’t. A well structured and executed Loyalty program provides the platform for the boisterous to become advocates and the shy to at least voice an opinion. Why pay money for a research panel when you can solicit candid opinions from those who are interacting with you and a have a factual basis for their praise or criticism? Surveying those whose level of interaction can’t be documented quantitatively is a gauge of brand awareness but not much more.

Put on your consumer hat. You will come to understand that Loyalty Programs should not recklessly collect data and let it sit idle or be used to support invasive marketing. Loyalty done right encourages behaviors which are profitable for the business and positive for the consumer. If any behaviors encouraged are harmful or have negative impact on the customer, throw it out of your offer matrix.

As we redefine Loyalty, we should take the high road. Agreement on business objectives is the right starting point, and filtering behavior change with your customer hat on will lead to value proposition creation that will stand the test of time.

You’ll notice that I have said nothing here of points or financial liability. That’s because Loyalty 201 can be executed using tangible benefits beyond points, and new avenues of cost-sharing are being explored every day to keep ROI in the conversation.

Walk yourself through the tenets of Loyalty 201 above and, if your program varies in one or more areas, consider it time for some tweaking if not a redesign.

It’s so simple. As the Good Book says, “wide is the road that leads to destruction, but small is the gate and narrow the road that leads to life (for this metaphor, success with your customers). Scripture also says of the narrow gate that “only a few find it” – that doesn’t have to be the case in Loyalty Marketing.

“While not every business needs a Loyalty Program, every business does need a well planned and executed Customer Strategy.” This is one of the loyalty mantras that I share on Hanifin Loyalty and the statement represents a guiding light on the path to innovation in the next wave of Loyalty Marketing.

For some businesses, building a brand so strong, so magnetic, so powerful is the foundation of its Customer Strategy. Achieving this summit is one of the most challenging tasks in business and, if done successfully, virtually precludes the need for a formal loyalty program, certainly one with points or other promotional currency involved.

The World Triathlon Corporation, owner and organizer of Ironman® and Ironman® 70.3 branded events, has climbed this summit, having turned a quirky and semi-dangerous undertaking in 1978 into a worldwide brand that attracts a brilliant demographic and brings tremendous economic impact to its host communities.

With the addition of the Ironman® 70.3 Series, WTC offers more than 50 events on the calendar each year and has the support of advertising partners including Ford Motor Company, PowerBar, Timex, Gatorade, Janus, and Philadephia Insurance Companies.

Ironman Lake Placid is the oldest of 7 US based events, and I was fortunate to be in town for the 10th anniversary race this past weekend. The compelling nature of the brand was on full display with over 2,500 registered athletes and their friends and families burning off nervous energy by shopping in the Ironman® store and patronizing local businesses.

Consider that the entry fee is $575 and that the average tri-bike sitting in the secured transition area is worth $4,000 (my estimate) and you can see that over $1.4 Million in entry fees alone were collected for the weekend and over $10 Million in two-wheeled treasure was waiting for a ride. Multiply these numbers by the 50+ events per year and you begin to understand the magnitude of the Ironman domain.

Ironman may still be a quirky and puzzling event for outsiders to grasp. Some of my friends have challenged the Ironman passion as nothing more than a mid-life crisis for over 40 types, suggesting that buying a new Corvette would be a heck of a lot easier. Others snipe that triathletes are narcissictic, type-A personalities preening their zero-body fat physiques in high-tech fabrics before the crowds. (OK, you’ve got the Type-A part correct).

Let me dispel some myths. As I volunteered at an aid station on the run course this weekend, I saw every size, shape, age, and ethnic origin of athlete pass me by. I would go so far as to say that, if seen in street clothes, many would never be mistaken for Ironman athletes.

I’ve also found that while some of the younger age brackets are the most competitive (30 -39 for instance), I have also noticed that as one moves up in age group, finish times don’t always increase, i.e. there is much more going on here than just signing up for the t-shirt.

Fred Reichheld, the Godfather of Loyalty Marketing, sketched out a continuum of business benefit resulting from adopting an enterprise approach to loyalty. At the end of the rainbow are price premiums. I would venture to say that Ironman, given the nature of the event and level of entry fee, is effective on all levels of lifecycle marketing, (acquisition, usage, retention, cross-sell) and delivers on price premiums across the board as U.S. based events generally sell out quickly after race day each year.

All the praise aside, there is always room for improvement. There is probably a limit on the number of events that WTC can stage each year in the U.S., and more emphasis on triathlon as a youth sport would help fill the funnel with future athletes. The fee structure could price out aspiring Iron-athletes from participating in the future, and the cost of Ironman branded merchandise is obscene at times, spawning a mild “love-hate” relationship with the brand. For instance, a fellow volunteer (himself a 9:44 IM finisher) commented as he pulled on a dollar-store poncho to thwart a rain shower that it would have been worth $70 if it had the IM logo on board.

There are other iron-distance events on the calendar, but WTC has created brand-swagger and is enjoying the price premiums created with its highly emotional participants. The fact that WTC backs up the current frenzy for its branded events with tremendous athlete experience adds glue that keeps people signing up for more. Even their finish line announcer, Mike Reilly, is part of the experience. Mr. Reilly has been the main announcer at the Ironman® World Championships in Kona since 1989, and it is his unmistakable voice that welcomes athletes to the finish line.

There may be some danger to IM that it becomes an elitist event, but then again, maybe that’s what it is all about. The Ironman® distance triathlon is still acknowledged to be the most challenging one day endurance event on the planet, and “if it was easy, everyone would do it!”

I think it’s safe to say that the same applies to WTC’s Customer Strategy.

“P” as in Profitability, that is.

Part of the challenge in playing the Loyalty Marketing game is that we, as strategists and solutions providers, tend to confuse the issue for our clients through our own marketing-speak. We spend too much time battling over semantics and definitions when all our clients really care about is increasing their bottom line. An article in this week’s Wall Street Journal “Why a Loyal Customer Isn’t Always a Profitable One” is a great example of how the debate can send the wrong message.

The article is attributed to a group of four led by Tim Keiningham, Global Chief Strategy Officer at Ipsos Loyalty and author of the newly published book Why Loyalty Matters. The premise of the article is that many companies incorrectly associate so-called “loyal” customers with profitable ones. The article states that “most company surveys wrongly define what constitutes a business’s most loyal, and thus desirable, customers” and goes on to make the valid point that “when customer value is included in the measure of loyalty, the goals of improving loyalty and financial performance are synchronized”.

So far, so good, but the article centers on the phrase “loyal customer” as if there is a consistent definition of the term in Websters and Wikipedia. There is no universally accepted definition of a “loyal customer” (is loyal defined by “x” transactions per month or a Lifetime Customer Value forecast in excess of “Y”?), only agreement on how to determine success in what we commonly refer to as a loyalty program.

The business has always been about creating profitable behavior change across a designated customer group. Existing customer behavior is assessed and objectives set for the program in terms of a percentage or numerical increase in activity (increase transactions from “A” to “B” or average purchase amount by “C” percent)  over a specified period of time. Distinct goals are set by segment or subset of the overall customer base and the potential for incremental revenue by each group influences the level of investment justified by the program sponsor.

For more on the monetization of loyalty, read Michael Hemsey’s article just published at Loyalty360.org. Michael is President Kobie Marketing and knows the business very well.

In my opinion, the WSJ article painted the industry as missing the point about connecting loyalty and profitability.  Consider this quote: “Creating and nurturing real customer loyalty requires satisfying customer needs and wants at a sustainable profit. Too often, customer-loyalty experts have ignored the latter in the belief that loyalty and profitability are synonymous“.  Best Buy certainly understood the relationship between customer profitability and loyalty after learning that “as many as 100 million of its 500 million customer visits each year are undesirable”. The electronics retailer subsequently took lots of heat in the press after rolling out its new “angel-devil strategy” during 2004.

I can personally attest that most organizations have a high level of awareness that building loyalty is not about creating emotions which somehow equate to profits. On the contrary, they understand that the game is about marrying qualitative (attitudinal) data with quantitative (transactional) data to create a compelling value proposition that, when sprinkled across portions of a customer base, will return measurable ROI.  The smarter practitioners are in analyzing results and evolving promotions to maintain the attention of most valued customers, the longer we sustain the behavior change.

It is easy to point towards an assortment of companies that rely too much on customer satisfaction surveys to predict loyalty and also too many convinced that answering “one question” will reveal who the loyal customers are. My confidence level in saying that business understands the connection between profitability and marketing investment in its customers is based on having to justify the ROI of my proposed solutions to companies across industry and in different geographic markets for the past 12 years.

I only wish I could get away with justifying the proposed budget for a loyalty marketing solution with the same fuzzy metrics that are accepted when evaluating branding campaigns, general advertising, and even social media (so far). If the Ipsos article were fully on target, my job would have been a heck of lot easier over these past dozen years.

Take it a step farther and I’ll assert that while every company doesn’t need a “loyalty” program, EVERY company needs a well planned and executed Customer Strategy. Imagine if our industry ditched the “L” word and adopted a more inclusive term. The semantics debate might be de-fused and we could get down to business.

Designing strategic marketing plans, I take comfort in using a proven planning methodology as I am assured of covering every aspect needed to create and launch an effective Customer Strategy. In other words, I am always sure to thoroughly vet client project objectives, customer needs and behaviors, the proposed value proposition to engage the group, and so on.

One key part of the planning process is to establish the communication strategy. What messages should be sent via which channel and how often are the starting points in an evolving plan. It was not so long ago when clients and their advisors rushed to email as the silver bullet for efficient and low cost communications within a Loyalty Marketing program.

Innovative at the time, it now seems old hat. Messages could be sent to broader groups at higher frequency at minimal cost using the digital channel. The money to be saved on printed catalogs and other correspondence was enough to have all the financial interests of the business salivating.

What I learned over time is that email is a wonderful means of communication for some, but not all Loyalty program members, and that there was still a place for print materials to accompany digital communications. The clients who insisted on the low cost channel despite encouragement to remain inclusive usually suffered over time and returned to a multi-channel approach.

We are witnessing another threshold being crossed as Web 2.0 has made available several new means of communications, many of which are worthy of trial but none of which are likely to shape up as the werewolf-killing silver bullet.

The sprawling growth of social networks has enabled people to talk beyond SMS and within networks including Facebook, LinkedIn, Digg, FriendFeed, and lots more. Twitter has small volume to date compared with Facebook traffic, but usage is growing and the cognoscenti are exchanging some seriously valuable information, not just what they ate at lunch.

Reflecting on my own introduction into the social networking world, I see a myriad of possibilities. The vast majority of members in long standing Frequent Flyer, hotel, and retailing sponsored Loyalty programs are most accessible by email. To generalize, Boomers are likely to respond to direct and email with a growing percentage paying attention to Facebook and other social networks.

If you are targeting Generation Y in your Customer Strategy, the see-saw swings the other way and it is likely that you would consider SMS, Facebook, and Twitter as tools to create an online brand presence and to open up real time feedback networks.

Long standing Loyalty Marketers have used the term “Dialogue” to describe their interest in establishing two-way communication between company and consumer. In some ways, nothing has fundamentally changed, only that we have more channel choice in today’s world. We have to recognize that not every consumer wants to talk with us in the same way or through the same channel.

How we create our online presence within Social Networks and select channels appropriate to the audience will have strong influence on our ability to build brand loyalty in the future.

If we were playing a word association game, tossing out “Loyalty” to the crowd would elicit responses “Points” or “Miles”. In a similar way, ask what business problem Loyalty is designed to solve and most people would respond “attrition” or “retention”.

Historical perspective on Loyalty Marketing

Obviously, historical perspective on Loyalty Marketing programs equates the strategy to a Hammer, a well designed and reliable single purpose tool. One of the tenets of Loyalty Truth offers:

“While not every company needs a Loyalty program,

EVERY organization needs a well designed Customer Strategy”

By expanding the mandate of data driven marketing programs to embrace all that is entailed in building Customer Strategies, we’ve magically converted the Hammer into a Swiss Army Knife. Try to do that the next time you’re in the hardware store!

A properly designed Customer Strategy may or may not use a promotional currency to engage with customers. More importantly, a Customer Strategy can be designed to achieve multiple objectives including new account or customer acquisition, increased retention and spend, and may be used to support new product introduction. If you think through the definition below, you might agree that expanding your historical perspective on Loyalty Marketing to Customer Strategy has a “Loyalty 2.0″ feeling about it:

Marketing strategy designed to improve and maintain profitability

across a targeted customer portfolio

while delivering a sustainable purchase experience

consumers wish to repeat™.

Loyalty programs remain an excellent tool to create and maintain customer preference and to collect data invisible from your competitors, but a new wave of innovation will be required to remain competitive in today’s market.

Customer Strategy

No business executive ever woke up in the middle of the night and said “I must have a loyalty program”. It was their business problem that interrupted a good night’s rest. Identifying specific business objectives to achieve will lead to the best strategic solution, and probably a more inclusive one than “points or miles”.

Begin to view your Loyalty program as part of a broader Customer Strategy and watch your “Hammer” transform into the more powerful Swiss Army Knife.

Having a well planned and executed Customer Strategy should be the litmus test for the efficacy of today’s corporate marketing department. Think you can live without it? Then ask yourself why companies are putting more choice in consumer hands each day and striving to gain perspective on customer preferences via blogs and communities.

Whether a Loyalty program should be part of the Customer Strategy is continually up for debate. My old friends at Colloquy have long postulated that “Loyalty is a tie breaker”, citing distinct circumstances that loyalty can and cannot influence. The assumption is that industries which are highly competitive and are approaching commoditization can leverage a loyalty program to their advantage. Caution is encouraged as shortfalls in brand image, product or service quality, pricing, or even physical coverage of a geographic area will limit the impact of even the most compelling loyalty program.

I have been studying loyalty programs across vertical industries and have a pending research paper which will outline a new set of best practices for the business. Look out for the related white paper, coming soon. In the meantime, I had to share my experience with two big box retailers illustrating how pricing anomalies can constitute one of those hurdles that even a well done rewards program cannot clear.

A simple home project caused me to seek out a 25 foot section of CAT5e networking cable. Since I needed to buy some office supplies and like Worklife Rewards, I headed into Office Depot to knock off my to-do list. There I found two choices of cable, with Gray or Blue being my color choices. The $31.99 price point seemed high, but I trusted ODI to be true to their big box origins and tossed the cable into my cart.

The need for some way to neatly attach the cable to the wall led me to Home Depot as nothing of the sort was available at ODI. Within 30 minutes I was staring at the clips I needed and, OMG, the exact cable just purchased at a price of $14.98. Not only could I save big bucks, but the cable came in white, a much better choice for my application.

Giving Office Depot the benefit of the doubt, I hope that I stumbled onto a true exception. I can understand price variances on individual items within a reasonable range, but this was a shocker. I left with the suspicion that ODI must provide certain items as “convenience purchases” to their shoppers and exacts a premium price in return.

Whatever the explanation for this huge price differential, this was an un-welcome wakeup call to a loyal customer. I felt betrayed. Where Worklife Rewards had lulled me into a willingness to give the chain a broad share of my home and office spend, I now was wondering how much those points were really costing me.

All things being equal, Loyalty programs are supposed to break the tie. They are intended to redirect consumer attention from price to free program benefits. My experience snapped me out of my loyalty trance and rerouted my brain to more carefully evaluate pricing of any significant item. More importantly, my confidence in taking a relaxed approach to shopping in this store was shaken.

Transparency and trust are two essential elements of building long term loyalty. I hope that these items are not “discontinued merchandise” at Office Depot but only “temporarily out of stock” >>>> Bill Hanifin

“While not every business needs a loyalty or rewards program, every business does need a thoughtfully created and well executed Customer Strategy.” This snippet of dogma clipped from the Hanifin Loyalty LLC site is backed up by many examples in the marketplace. It emphasizes the importance of forming marketing strategy with your customer’s best interests at heart, and only then creating tactics for execution.

For years, Walmart has drawn the attention of every loyalty marketing business development executive who can fog a mirror, each pledging to “be the one” to convince the retailing behemoth that giving away points will drive customer loyalty. To date, Walmart has perfected the art of playing hard-to-get better than any prom queen in history.

You see, Walmart already has a loyalty program in place – it’s called the business model. Beginning with “Always Low Prices” and evolving to “Save money. Live better”, Walmart is all about optimizing its supply chain and delivering the benefits of low prices to its customers. The company website (www.walmart.com) even has a counter to show the “amount of money Wal-Mart saved American families since Jan. 1, 2008.” The graphic below was taken May 18, 2008 at 12:15pm ET. Check it again when you read this article and see how much the number has grown! Note: it is small, please click on it to enlarge it!

Tapping an example from the local retail market, every cyclist and triathlete depends heavily on their LBS, otherwise known as the Local Bike Shop. I don’t know the origins of the LBS descriptor and I’ve never heard of a Global, National, or Regional bike shop. Just take it to mean that LBS equates to your good old neighborhood bike shop where you place your trust for all your cycling needs.

For years, I frequented a shop that had a lot going for it. A convenient location, wide selection of product, and word of mouth recommendation from friends made it a no-brainer to be my LBS. Too bad that nearly every time I walked through the door I was greeted by “Need a new bike?” I am sure the owner treated this as a throw-away line of little consequence, but it just wore me down. Most people keep their bikes for years, not months, at a time and depend on the LBS for parts, service, and clothing in the meantime. In weak moments when I responded to the standard question by asking “what’s new?” the owner would point me toward the latest bike he had in stock. According to him, nearly everything in his inventory was perfect for me.

Numbed by the continual barrage of sales pitches, I visited a few competitors. My search landed me in a shop that didn’t even carry finished bikes. In fact they won’t sell you a bike without first measuring you on a test machine and then recommending a short list of frames that are compatible with your anatomical dimensions. I had suits tailored to fit before, but never a bike. The business model at the Racer’s Edge (www.theracersedge.net/) is optimal for any serious cyclist. Not only did I get the message that my interests came first, but the process of being fit to the right bike created a level of trust and respect for the staff that could not be replaced with a points program, no matter how good the offer.

It should be clear by now that winning and retaining customers can result from adoption of a unique business model that emphasizes price, service, quality as well as other factors. The finer distinction to make is that regardless of whether your business adopts a traditional loyalty program to reward customers, there is always value in collecting and leveraging customer data in order to improve the in-store experience and the economics of marketing spend.

In both of the examples cited here, there is room for improvement.

• With Walmart’s dedication to a low price strategy, it might be difficult to craft the mechanism to begin the collection of individual customer data and match it to transactions. It’s tough to pull off without creating some type of “club” and Walmart is likely to stick to its one-to-many philosophy.
• For high service, high touch businesses such as my favorite LBS, collecting customer data and preferences is much easier to embrace and the investment in such efforts is guaranteed to pay off handsomely.

Building a Customer Strategy for long term success is inextricably linked to your business model, brand, and objectives. Determining a strategy before applying tactics is the key to victory. To quote the military strategist, Sun Tzu, Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat”.

… Bill Hanifin

Ever since man has been on earth, we’ve been running. In the beginning, our motivation was the need for food, shelter, and survival. By the mid-twentieth century, pursuit of fitness through sweaty activities had become the domain of oddballs. Given the outlaw nature of adult fitness only 50 years ago, the origins of the 70’s running boom are remarkable.

Bill Bowerman, the one-of-a-kind University of Oregon Track & Field Coach, is most well known as the guy who shaped Steve Prefontaine’s front-running style into record breaking performances, and for having a hand in the founding of Nike. Few know that his chance trip to New Zealand in 1962 would lead to the jogging craze that swept America in the early 70’s.

Ask most people about running and they have an opinion – usually resolute and often diametrically opposed. The phenomena is so pervasive that New Balance has adopted it as the theme of its “Love and Hate” advertising campaign. Since I’ve logged about 35 years of pavement pounding, I can attest to man’s Cybill-like relationship with the sport. Some days the endorphins kick in and feet seem to float across the pavement. Other days, it just plain hurts.

In my experience, the most reliable anesthesia to dull running agony is to think. Allowing my mind to wander may have contributed to slower race times, but that’s another story. Through it all I’ve found that a good long run will clear the mind, spawn new ideas, and root out the solution for the problem of the day.

Soldiering through a 10K run the other day, I pondered the many ways in which independent retailers strive to breed loyalty and combat big box merchants. Punch cards and cash back discounts are the most common tactics used today. Listening to one merchant talk about his program recently, I realized that it was purely tactical, without strategic foundation, and absent specific objectives except for the hope that “more sales” would result.

As the ten kilometers that add up to the 6.2 mile run passed by, I assembled a list of ten questions that every retailer should ask when seeking to improve repeat purchase behavior and increase customer loyalty. The answers can be blended with a bit of “secret sauce” in order to give their Customer Strategy new meaning.

The 10 K’s of Retail Loyalty:

1. Who do you really think is your competition?
2. What does your Brand stand for?
3. How are you identifying customers today?
4. What are you doing with any data collected?
5. What are the objectives of your marketing efforts?
6. Are your offers coordinated to meet these objectives?
7. How are you communicating with customers?
8. How do you measure results?
9. Are employees trained to understand and promote the program?
10. What are you going to do next?

Marketing resources are scarce and, in a tough economy, every penny counts. Working through these ten questions will lead to a simple, yet effective strategy that any independent retailer can employ to improve their business.

It’s no sweat!

Bill Hanifin