Management Update: Use Six Building Blocks and CRM to Achieve Customer Loyalty

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1 IGG A. Sarner Article 20 August 2003 Management Update: Use Six Building Blocks and CRM to Achieve Customer Loyalty Within the six building blocks of loyalty management programs lie pieces of customer relationship management (CRM) technology tools that can be very effective in rolling out a successful loyalty management initiative. Within the six building blocks of loyalty management programs lie pieces of customer relationship management (CRM) technology tools that can be very effective in rolling out a successful loyalty management initiative. Six Building Blocks The six building blocks of loyalty management are (see Figure 10): Life cycle Dialogue Personalization Operational loyalty Customer satisfaction Core value Figure 10 Loyalty Management s Six Building Blocks Align With CRM Functionality Gartner Entire contents 2003 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Loyalty Hierar chy Building Block CRM Functionality Beintunetomy Life cycle Ev ent trigge rs evolving needs. Cross-selling Beintunewithmy needs. Dialogue Upselling Call center Direct mail Field sales Clienteling E-m arketing Make it easier to satisfy my needs. Personalization Segmentation Campaign management Optimization Pre dictive mo deling En tic e me. Operational loyalty Incentives: point programs, memberships, Get to know me. coupons and prospecting Lead management, data collection and customer profiling Satisfy my needs. Customer satisfaction Contact center Measurement and reporting Promise me something that I need. Core value Bra nd and produ ct managem ent Enterprises, after establishing a loyalty management strategy, can look at some tools that may exist within the organization that relate to CRM functionality. For example, an enterprise may have an e- mail marketing system that, if executed properly, will facilitate the dialogue building blocks, as depicted in Figure 10. In addition, it may have an operational loyalty program in the form of a transactional database in which the enterprise could start mining for long-term loyalty management. Most enterprises will have a gap within the personalization building block and will have to build out functionality in that area. Action item: Start to identify and access the pieces of functionality that already exist within the enterprise, and determine what pieces are likely to be needed. Then place them within the context of the six building blocks. Align Resources Enterprises should evaluate their resources against the six building blocks of loyalty management. Internal and external factors can execute a successful loyalty management initiative (see Figure 11). First, and most important, are the organizational readiness, commitment and leadership capabilities that must be addressed at each stage of the building blocks. For example, assessing the core value of the enterprise itself should not be left for suite vendors to develop. Figure 11 Align Resources With Loyalty Capabilities

3 Building block Life cycle Point solutions External capabilities CRM suites Cons ulting Outsourcing Internal capabilities Technical capabilities Orga nizat ional planning Dialog Personalization Operational loyalty Customer satisfaction Core value Next, capabilities to achieve personalization can come from organizational planning, but they may require a CRM suite to execute. Action item: Enterprises need external as well as internal capabilities for loyalty management, and, just like CRM, no one size or vendor fits all needs. Customer Loyalty Life Cycle To illustrate the idea of aligning the enterprise with a customer s life cycle, Gartner uses an example of a retail bank looking at the life cycle of customers to align with its products and services (see Figure 12). Figure 12 Case Study: A Bank Aligned Offerings to the Life Cycle

4 Customer Spending Savings Students and Teens Creditcard IRA 401K Disability insurance Single Adults Money market 401K Low value investing Childless Couples Gold credit High value insurance Mortgage IRA Trust planning Life insurance Homeequitylineofcredit Young Established Families Families Retirement Investing IRArollover Average annual consumer spending Empty Nesters Estate planning Trust administration Refinance Home equity line of credit Mature Adults Life Cycle The bank was able to identify key events in its customers life cycles and worked to align products and services to take full advantage of each event. The result was an identification of seven major life-cycle events with products and services that aligned well with them: Students and teens: Without a significant amount of spending power or a family, this segment tends to start with a savings account. Single adults: Single adults making more money tend to start 401(k)s or IRAs (Investment Retirement Accounts). Childless couples: These people tend to invest in money market funds in addition to 401Ks. Young families: This segment invests in items like homes, so mortgages are appropriate here. Established families: Families in this life cycle stage are interested in protecting assets (for example, life insurance). Empty nesters: These customers look for retirement and long-term security. Mature adults: This life-cycle stage warrants estate planning or trust administration. Ultimately, with more than 60 million Americans belonging to at least one of more than 200 U.S. customer loyalty programs, enterprises must recognize the importance of their efforts to foster customer loyalty. Although many of the programs deliver value to customers and enterprises, competitive pressures and low barriers to entry have resulted in an abundance of program offerings, with little differentiation. Recommendations Gartner offers the following recommendations:

5 Provide leadership commitment. Loyalty management cannot exist in one department. It must have a direction with goals and processes that permeate throughout the business so that it can be executed at all points of customer interaction. Extend loyalty strategy from core value (the brand). Determine the main reasons why customers come to the enterprise in the first place, and create loyalty initiatives that strengthen the core value not distract from it. For example, Wal-Mart shoppers like the store shelves stocked at a competitive price. A loyalty initiative that includes a personal shopper that knows all about a customer s preferences has nothing to do with why customers come to Wal-Mart. Compensate, empower and align employees. Employees must have an incentive to carry out loyalty initiatives. If it does not affect them (for example, a promotion, bonus or commission), they will not follow it. Ask customers; then show them (personalization). Do not underestimate the value of showing that the enterprise listens to customers preferences and acts on them. Doing this right can be much more valuable then a point program. Use the loyalty hierarchy of needs. Hypothesize, validate, learn and repeat. Written by Thomas Berg, Research Products Analytical source: Adam Sarner, Gartner Research For related research published in Inside Gartner, see: Management Update: Focus on the Loyal and Profitable Customers, (IGG ) Management Update: CRM Business Transformation Is More Than Just Technology, (IGG ) Management Update: The Eight Building Blocks of CRM, (IGG ) Management Update: Customer Experience Management Is Critical, (IGG ) Management Update: Applying Analytic Techniques to Gain Customer Insights, (IGG )