The Customer Loyalty Solution : What Works (and What Doesnt) in Customer Loyalty Programs

YourSport (a fictitious name for a real company) is an enterprise built around active sports participants and fans. The sports include, among others:

• Football and rugby

• Tennis and cricket

• Motor sports

• Skiing, sailing, and swimming

• Bicycling and boxing

To publicize and generate enthusiasm for these sports, YourSport broadcast sports events and maintained a very active Web site with news about sports on several continents in several languages. The Web site included news about teams, chat rooms, fan clubs, videos, TV schedules, and the ability to shop for clothing and equipment used in the sports or by fans.

YourSport established a club that allowed its members to chat with their favorite sports stars and get in touch with their favorite YourSport commentators through message boards. From newsletters to free email, members could create their own sports Web sites and stay tuned to the latest on-air action through the YourSport TV schedule. The club, which had a nominal one-time membership fee, proved to be a major marketing success.

YourSport had had a fulfillment database for many years, but it had no customer marketing database. It knew what its sales were, but it knew little about its customers and their behavior. This could be learned from a marketing database. To build and maintain its customer marketing database, Scott Andrews of YourSport turned to Karen Coolbaugh at CSC Advanced Database Solutions. The information maintained on this database enabled Scott to do some highly professional analytical work to determine the value of the YourSport customer. Scott had access to the database via the Web using the CSC-provided software Brio. Using this software, he was able to make some profitable marketing decisions.

Scott found several useful ways to segment YourSport customers:

• Sports team members and nonmembers together equal all buyers.

• Club members and nonmembers together equal all buyers.

By segmenting customers in this way, Scott was able to draw some valuable conclusions:

• Team and club members were very strong contributors who converted to multibuyer status at high rates regardless of time on the buyer file.

• In their first year, team buyers contributed at a rate that was five times that of nonteam buyers. Within the same time frame, club buyers contributed at a rate that was eight times that of non-club members.

• In the second year, team buyers again contributed at a rate that was five times that of their nonteam counterparts. Club members contributed at a rate that was 11 times better than that of their nonclub counterparts.

• YourSport recouped most of the $12 maximum investment to acquire a new buyer, on average, within the first 9 months of a buyer’s first purchase. On the average, a buyer who was on file for 2 years contributed approximately $39.

• After being on file for 1 year, club members contributed $71, and team buyers contributed $89.

• Within 2 years of their first purchase, 81 percent of club members had converted to multibuyer status. In this same time frame, only 41 percent of the average customers converted to multibuyer status.

• Team and club buyers contributed roughly the same amount during their second year as they did during their first.

The difference between club or team members and nonmembers, shown in Table 10-12, was striking. In terms of conversion rates from one-time buyers to multibuyers, Figures 10-2 and 10-3 show how the team and club members ranked.

Figure 10-2: Team Performance in Conversion to Multibuyers

Figure 10-3: Club Performance in Conversion to Multibuyers

Resulting Marketing Decisions

The database permitted YourSport to determine the customer lifetime value of several customer segments using this same approach. With that information, the company was able to make strategic marketing decisions that were of great value to the enterprise. Included in these decisions were the following:

• Keep a maximum marginal investment in consumer lists of $12. Previously there had been no way to determine what that maximum would be.

• Set the maximum marginal investment in team-specific marketing efforts at $30.

• Since club members were so valuable, provide incentives to increase club membership, whereas previously, there had been no incentives.

• Send targeted emails to people who were not club members, encouraging them to join.

• Add membership rewards, such as travel benefits, to the club to encourage increased membership.

Additional Analytical Steps

Any good marketing initiative, such as the customer value study, always leads not only to marketing recommendations, but also to ideas for further analysis. This study suggested analysis of

• Purchasers by products bought in the first order

• Purchasers by brand of merchandise

• Multichannel buying behavior

• The value of incentive purchases

• LTV by region of the world and within U.S. markets

• Multicompany and multisport purchasers

The Value of the Database

Today YourSport is miles ahead of its position before CSC built its customer marketing database. It understands its customers better, and it has been able to use that knowledge to increase sales, cross sales, and retention. The database has paid for itself many times over.