Muhamed Muneer ----------------------------------- CEO & Chief Consultant - Innovative Media THE RULES HAVE CHANGED

at the risk of sounding boringly commonplace, let me tell you again that, more and more companies are realising that their most precious asset is their existing customer base. As a result, the traditional marketing mix, which has focused heavily on gaining new customers through mass marketing, is evolving. Even Philip Kotler, the marketing guru, has realised that his 4P model is no more valid and he has made a recent attempt in re-writing marketing basics. In fact, the Kotler’s 4P (Product-Price-Place-Promotion) basic marketing model might be the prime reason to constrain so many brilliant marketing minds in a tunnel vision!
Marketers are moving funds from their advertising budgets and allocating them for customer loyalty and retention programmes, which go by many names, including loyalty, frequency, retention and relationship marketing. But all define the same basic marketing approach: Identify, segment, grow and retain existing customers by communicating and rewarding desired behaviour. Pioneers of this model include Patricia Seybold, Don Peppers and Martha Rogers.
In this article, based on the newfound thrust by companies in the region, I would like to take a brief look at the 10 most important trends in loyalty marketing affecting almost every company selling almost every kind of product in almost every marketplace. These trends are based on certain analyses and also using a technique called scenario mapping. Incidentally, we have devised a proprietary tool termed, Customer Scenario Tool, which may be used in a similar situation. For further information, you may write to me directly.

1. Consumers are smarter and they expect more: As the general population becomes better educated, as is the case in this region, consumers approach purchase decisions with greater scrutiny, and they have access to more data for comparison shopping. One example is the nutrition labelling education, though not mandatory in India, undertaken by a few companies especially in the children’s food segment. These companies provide detailed nutritional information on every package. This allows consumers to compare the specific nutritional features of every food product within a specific category. Also, the Internet and the growing popularity of consumer publications (e.g.: publications in the automobile sector) and TV shows (such as Top Gear) give consumers greater access to product information. With greater scrutiny comes stronger expectations and demand for product quality and customer service. To meet these demands, and emphasise differentiation and added value, companies launch loyalty-marketing programmes.
2. The Internet has led to disloyalty: The Internet as a distribution channel for product sales and information has caused many consumers to change buying habits and methods. Researchers report record-low consumer loyalty in the Internet environment. As an online customer, I usually look at cheaper options, not necessarily branded products and services. This is most common in the airlines and hotel industries. For instance, for my recent trip to Boston, I searched the Internet for the best deals on airlines and hotels. Believe it or not, I was able to save more than 60 per cent of normal rates due to a combined deal of airlines and hotel.
3. High labour cost is squeezing customer service: As the quality labour pool cost increases (partly due to increasing expertise and growth along the learning curve), not many companies can afford the right people for service jobs. Many of them end up recruiting lower quality people for these jobs. Additionally, retail organisations and service-based call-centres face increased employee recruitment and retention challenges. As a result, customer service levels are eroding, particularly in fast food and mass merchandising retail. As consumers become frustrated with poor service, longer lines and other service-related problems, customer defection becomes a threat. The critical decline in customer service quality also damages and severs relationships with formerly loyal and profitable customers. If you have any doubt on this issue, check out and compare the services in few of our leading retail chains. There are of course, the non-believers of loyalty programmes such as Kishore Biyani of Pantaloon, who strongly argues a case for price-based marketing with his chain of retail stores.
4. Price-based switching programmes change expectations: This is not very relevant to India in certain sectors such as water and electricity. In other parts of the world, customers have gotten a tempting offer to switch their cellular or landline telephone service: “Switch your cellular phone service to the company that’s calling, and it will send you a free incoming call facility for three months!” Some of these offers are worth USD 200, some USD 300 and during extremely competitive periods, some companies may offer benefits up to USD 600! These price- or cash-based offers have taught consumers to be on the lookout for the next best offer. We did a dipstick study in India with some of our customers and the majority said they were contemplating making a switch to the BSNL CellOne service and Reliance Infocomm who offer cheaper rates on a monthly basis. Competitors in this industry, and many others, are starting loyalty-marketing programmes to establish value and create barriers to exit.
5. The global market introduces new competitors: As the global economy opens, our companies are seeing increased competition, and many sectors are facing foreign competition for the first time. Look at the way the local media moghuls are reacting to Star News’ plans and FDI in media. Many use loyalty marketing initiatives to establish stronger value propositions in the hopes of blocking foreign threats to market share. Look at what the automobile distributors have done to bring back their valued old customers into their fold with their service loyalty programmes and co-branded activities with other companies. Planned as a way to bring in non-warranty service business to the authorised agents, this programme has expanded in a big way. (They could still do a lot of progress pretty fast, if only they plan this process outside in, looking from what the customers really need and then modifying their own programmes and processes).

As the global economy opens, our companies are seeing increased competition, and many sectors are facing foreign competition for the first time

6. Customer-focused marketing technology is developing rapidly: The term “customer database” is outdated. Technical giants such as Microsoft and Oracle have developed, and continue to enhance, data warehousing systems that collect and mine valuable customer information in real time. And marketers are incorporating these systems with software innovations like Epiphany’s E5 to use the data for smart and ROI-based loyalty marketing programmes.
7. Deregulation makes choice more complicated: In our country, first we had to choose cellular service, and in the beginning, we had only price to differentiate between the first two providers. Eventually, large advertising budgets and price-based switching programmes gave us more to consider. Then, deregulation gave us more choices to make. In developed countries, customers are inundated with marketing campaigns for basic telephone service, cable, electricity and even petrol, as utility companies compete for customers. Challenged with selling commodity-based service products offering little opportunity for brand differentiation, these companies look to establish increased value by developing loyalty-marketing strategies. Already, pilot programmes are operating for early-adopters. For instance, power companies may offer customers a variety of added benefits such as consolidated billing and home energy use evaluations. I think we do not have to wait long to see this happening when Reliance roll out their consumer business plans in gas, petrol, and infocom.
8. Mergers and acquisitions can upset customers: For many industries, acquire-or-be-acquired is the name of the game. Mergers and acquisitions can have a significant impact on brand and product loyalty, and may cause customers to look for alternatives. This trend has been especially pronounced in the financial services industry, where customers struggle to keep up with the logo changes in their chequebooks. In fact, the merger of ANZ Grindlays Bank with Standard Chartered Bank has seen many loyal customers of the former switching to local banks such as ICICI Bank or HDFC Bank Bank.
9. Mass media costs are increasing: Advertising is more expensive, and marketing budgets are becoming tighter. The average cost of a 30-second spot during peak time has increased by more than 200% in the last five years. So marketers need to drive increased ROI on their marketing budgets. This trend fosters loyalty programmes, because loyalty marketing focuses on existing customers whose behaviours and responses can be tracked, and marketers can pinpoint response and accurately attribute incremental revenues to marketing rupees spent.
10. Competitors are doing it: Loyalty marketing has become a table-stake in many industries. Almost every hotel chain, airline and credit card Company offers some type of frequent customer programme; customers have come to expect them and compare benefits and rewards of competing companies. As a result, competitors are racing to introduce new perks, better benefits and some other element or twist that no other company offers.
These trends pervade every market situation, and companies are either jumping on board with loyalty marketing, or they are watching their customers go by on the competitor’s train.
Now, the question of how one can look into the future and predict some trends. One potentially helpful tool is scenario planning, which involves envisioning alternative versions of the future and generating strategic responses to deal with them, should one or more occur. Scenario planning avoids the dangers of single-point forecasts, and allows a company to more rapidly modify its strategic direction as actual events unfold. In fact, in the US, soon after the 9/11 terrorist attacks, a group of Philadelphia-based professors met to map out scenarios for the business environment in the coming three years.
How can a marketing team begin to develop scenarios for the future that might affect their business or product? One thing companies can do is come up with scenarios for the economy. Companies can identify major economic trends, and they should then create a list of uncertainties. The uncertainties can lead to a lot of variations on trends. For example, if there’s a trend toward decreased dependence on global trade and uncertainty about the availability of oil, one scenario is that there will be a major push toward looking for local alternative energy sources. Companies can also come up with scenarios with respect to competitors: ‘What is it we might think our competitors will do?’ Typically companies will look at what competitors have done and they will not spend as much time on what the competition will do in the future. And a firm cannot be too narrow in thinking about alternative scenarios.
Once marketers have developed their scenarios, what is the next step? First, they must get their antennae up for what is happening. They need to have indicators to track if those scenarios are starting to emerge. For example, I do not know what the competition is doing, so I need to track what they are spending, whether they are building plants... and I also want to track their prices. The second thing - and these are not either/or - is to develop contingency plans for what are the reasonable potential events in order to respond to a new environment. Contingency planning is an extremely important component. It may mean going down a different path than originally planned. Potentially, a company could come up with hundreds of different scenarios as well as strategic responses. How can they funnel them down? You can group some of them together. For instance, you may have similar types of responses to various kinds of uncertainties. So group some of those responses together and then decide whether there is a general trend in what would end up happening.
What are the challenges of the scenario-planning process? The biggest challenge is being able to think broadly enough; too often, we look at a narrow range of what could happen.
We have talked about economy and competitors as starting points for scenario planning. What about customers? I have put customers in with the economy, but they really should be separated out. What we must try to do is speculate on how we think consumer behaviour is going to change.There are many more issues on the scenario mapping/planning process and it is not possible for me to discuss all issues in this article. Readers who are interested to do their own customer scenario mapping and planning, may get in touch with me since our company has now worked out a series of processes on this front.

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Muhamed Muneer is the CEO and Chief Consultant of Innovative Media, a customer and knowledge management company. He helps smaller companies gain significant market share and advises on customer retention strategies. Feedback may be sent to mmuneer@yahoo.com

turning point

"Using the modern database tools should enable us to make better decisions based on knowledge, and not serve as an excuse for 'more accurate assumptions'."

Helmar Rudolph Publishing Editor, Marketing Competence