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

BMW developed a unique program for building a relationship with prospects even before the prospect made a firm decision to purchase a car. The process was called “Extending the Dialogue.” BMW produces luxury cars that have a fierce customer brand loyalty. At the time that BMW started this program, the entire luxury car marketplace was sharply down—sales were 9 percent below the previous year’s sales. In addition, BMW’s key competitors, Mercedes Benz and Lexus, were expanding their product lines with strong product offerings.

The start of the new BMW program was a real-time prospect scoring system that identified BMW’s “best prospects.” The program was set up to communicate with these targeted prospects over a 6-week period.

Before the program could begin, Kay Madati, director of relationship marketing, the genius behind the program for BMW, asked msdbm of Los Angeles for help in overcoming a number of significant obstacles:

• Twelve different data systems had to be combined into a common marketing database.

• BMW had to get multiple departments to cooperate with one another and to share their data freely with a central source.

• BMW had to create an environment in which there was unselfish sharing of response and sales information among competing vendors.

• The company had to get a highly successful and independent dealer organization to share its information with BMW.

• It had to get prospects to describe their purchase intentions.

• It had to recognize that high-end consumers do not respond well to direct marketing efforts because they receive them from many companies.

• It had to deal with the fact that many consumers’ computer equipment had slow Internet connections and Web browsers (like AOL) that could not receive HTML emails.

• BMW had not yet computed the lifetime value of its customers.

• At first, BMW could not deliver personalized content about the products that the customers owned or were interested in.

• BMW lacked a scoring system to determine who would be a great or a valuable prospect.

• In the past, BMW had not used accurate methods of evaluating success, such as control groups.

• BMW had to shift from being an entirely product-oriented company to being a customer-oriented company.

How the System Worked

The system that msdbm designed for BMW worked this way:

• First, BMW and msdbm profiled and analyzed current owners to determine who would make the best prospects, relying on both customer-supplied and appended data from 13 different sources.

• They decided to concentrate marketing dollars on these best prospects, using a 6-week communication program that involved both direct mail and email.

• They created lifetime value tables for the owners of new and used cars.

• They got a strong manager to work with the various vendors, internal departments, and dealers to encourage them to share information.

• They developed a process and methodology for a true relationship-building system using not only the Internet but also data from BMW’s legacy systems, changing and updating all systems so that they could receive and use responses from the prospects.

• They surveyed participants to receive feedback on the program, refine the process, and improve the delivery system.

• They set up a control group to determine the effectiveness of the program.

• They provided a Web-based reporting system to track the results.

• The system was set up to manage 5 million prospects and customers in the database.

• They provided feedback on all the information to everyone in real time through the Web.

The Scoring System

Before prospects were put into the system, they had to be scored to identify those who were more likely to purchase, by model, and those who were less likely to purchase. The scoring system set up by msdbm automatically

• Performed regression and correlation analysis using customer-supplied and Experian data on current BMW owners to identify unique independent variables.

• Developed score ranges for variables based on frequency distribution, standard deviation, and historical experience.

• Scored samples of prospects and compared results.

• Developed lifetime value tables and assigned a value to each customer and participant.

• Delivered personalized content and information to each responder, whether the responder was a previous customer or a prospect.

• Used variables to score prospects; these variables included purchase time frame, make of current vehicle, age, income-to-price ratio, year of current car, source of prospect lead, and debt-to-income ratio.

BMW and msdbm set up a 6-week communication program that was targeted to people who had expressed an interest in BMW by responding to one of the current marketing programs, such as direct-mail or Internet requests. These prospects had come from rented mailing lists, in-house lists, and responses to advertising. Although this was a prospect-based program, current BMW customers who were interested in purchasing another BMW and who had responded to existing BMW programs were included.

The media used were print on demand, email, and Internet-based. The content was designed to be what the prospect was interested in receiving. There were a number of successive follow-ups that combined dealer calls, emails, personalized on-demand printing, and invitations to events.

Results of the Program

The effectiveness of the program was gauged by comparing the conversion rate of consumers enrolled in Extending the Dialogue to that of a control group. Conversions by participants in the program were 20 percent higher than in the control group. In detail, the program had these results:

• Communications were sent out to prospects and customers in a much more organized and timely way.

• The system beat the control group by 150 percent in terms of closing the sale.

• Sales of BMWs were up 25 percent for the year, while sales of all other luxury imports were down 7 percent.

• Overall sales increased by $25,000,000.

• Both management and dealers felt that they had a better understanding of the BMW customer, which allowed BMW to better target its promotions.

• BMW prospects appeared to have been receptive to this program, encouraging BMW to roll it out on a larger scale.