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

One of the first things to remember about database marketing is that its benefits are incremental. Every company that uses database marketing successfully has another profitable sales channel already working for it, such as retail stores, mass marketing, catalogs, or sales through dealers or agents. The company uses the profits made through these other channels to build the database and develop the communications that make it work. The idea in database marketing is that you can increase your profits by an incremental amount through building customer relationships and information that have the result of

• Increasing the customer retention rate or repurchase rate

• Increasing referrals

• Increasing the cross sales and up-sales

• Using the customer profile to find more loyal and responsive prospects

The database does not have to bear the full responsibility for sales—that is done by the other channels. What the database does is to increase those sales by a certain percentage. The incremental amount is seldom massive—perhaps 5 to 10 percent is all. But that 5 percent can be very profitable.

Marketers have learned how to measure profitability and lifetime value. There are many examples of this in this book. Marketers have learned to determine who their Gold customers are and how to retain them. They have learned to use recency, frequency, monetary (RFM) analysis to determine which customers are most likely to respond to offers. They have learned many rules, such as the following:

• Giving customers a choice in a direct offer always reduces response.

• Don’t market to Gold customers, work to retain them.

• Don’t treat all customers the same way—save your resources to reward your best ones.

• Always set up control groups to measure your success—if you don’t, you can’t prove that what you have done has really worked.

• Compute the lifetime value of your customers and put it into the customer records so that you can use it to evaluate the success of your marketing strategy.

• The more products you sell to customers, the higher their retention rate will be.

• Customers like to receive communications. Almost any communication will increase sales and retention rates.

• Referred customers have higher lifetime values and retention rates than the average customer.

• Offering discounts to attract new customers produces disloyal customers.

• Use the Web and email as a powerful two-way customer contact medium.

You will have fun with this book—reading the chapters, taking the quizzes, and using the charts. All the numerical charts in this book can be downloaded free from www.dbmarketing.com, where you will find the answers to the quizzes, more than 100 magazine articles, free software, and a lot more.

If done properly, database marketing will be fun for both the customer and the marketer. It is an intriguing game of communication and life. Enjoy it while you increase your sales and profits.

I will be glad to hear from any readers on any subject at any time. You may reach me at dbmarkets@aol.com. Point out mistakes in the book, ask for help with marketing, or send me a case study that I can use in a future book.

Arthur Middleton HughesVice President for Business DevelopmentCSC Advanced Database Solutions2100 South Ocean Drive, Suite 16AFort Lauderdale, FL 33316 dbmarkets@aol.com November 2002