Delta Airlines recently revamped its loyalty program changing how rewards are distributed to its customers. In an article in Knowledge@Wharton, Peter Fader, Wharton Marketing Professor, applied the concept of customer centricity in reviewing Delta’s current loyalty program.
The concept is simply; “the recognition of differences across your customers.” Knowing that 4 percent of Delta’s customers accounted for 25 percent of their business, Fader found that a redistribution of rewards would truly allow Delta to better acknowledge their most valued customers. This led Delta to rethink their loyalty strategy so that it could be tailored more towards rewarding the customers that bring in the most revenue, rather than treating all loyalty members equally.
It’s actually quite innovative. It’s certainly easy to understand when illustrated by this example: A businessman who takes frequent short trips, on little notice and pays full fare, is rewarded less than the couple that travels infrequently, over long distances, books well in advance and at discounted rates. The article points out that, in the current state of many frequent flyer programs, it would be more difficult for the businessman to earn rewards and perks than it would be for the couple; even though he actually produces more revenue for the airline. According to Fader, “some customers deserve better treatment, and that should be decided on the basis of what they’re worth to the firm.” He further explains that when he’s defining “worth,” he’s not referring to what a customer has done in the past, but is basing it on a “projection of what we think this customer will be worth in the future.
With the amount of data dealerships have at their disposal, it would certainly be possible to project customer lifetime value based on purchase trends and service revenue. Even Fader admits, however, that a healthy ecosystem will see some companies adopting customer-centric loyalty programs, while others continue to operate what he terms “performance superiority” programs, which reward people based on transactional frequency over revenue.
When considering net revenue during the initial transaction, a literal translation of this type of loyalty program to automotive dealerships might initially skew revenue (at least in sales) towards special finance customers. The customer with perfect credit, who negotiated you down to invoice less holdback, then brought his own financing, may not be the one who generated the highest gross of the day. But they may very well be the customer who brings the most revenue to the store over their lifetime. They are probably more likely to bring their car into your dealership for service than an independent auto repair facility, as price will be less of an issue.
On the flip side, sometimes, that special finance customer will be so thrilled with your assistance in getting them a vehicle, that they will bring you all of their friends and family to buy a vehicle.
Delta’s new program is certainly an interesting concept and will be worth watching as its customers experience this program change. It will certainly experience some backlash from consumers who feel as if they are getting short-changed in the new system. However, no matter what happens, Delta will absolutely find out who its loyal customers are. Customers will make the choice to stay or defect to an airline that offers a more generous frequent flier program.
In a world filled with loyalty programs, it’s always interesting when I talk to a dealership that harbors doubts. The cost involved in having a loyalty program is minimal compared to the revenue generated. However, at times it seems as if dealers are intimidated by the effort it would take to administer one.
Loyalty program benefits and results are wide-ranging and go far beyond simply giving away free or discounted products or services. A recent study by Forrester, names a few:
- Just 51% of consumers that did not belong to a loyalty program reported that when they liked a brand they tended to stick to it. However, this increases to a healthy 64% if the consumer belongs to a loyalty program.
- 48% of consumers who belong to loyalty programs reported that price is LESS important to them. This falls to 43% for those that do not belong to a loyalty program.
- Consumers who belong to loyalty programs are willing to pay more for convenience (50%) than consumers who do not belong to a loyalty program (36%).
- 52% of consumers who belong to loyalty programs “often tell [their] friends and family about new brands, products, or services,” versus 33 percent of people who don’t belong to a loyalty program.
It would seem logical that the primary motivation for joining a loyalty program in the first place is for discounts or to earn freebies and that may, in fact, be true. However, at some point after joining, consumer perception shifts away from price towards brand and convenience.
Consumers tend to shop at a particular grocery store because they get used to it. They know where everything is located within the store so it makes their time spent grocery shopping more efficient. The more they shop there, the more convenient it becomes for them. For example, Whole Foods is a very popular store, yet there are not a lot of them to shop at – only 360 stores across the entire U.S. and the United Kingdom combined. Compare that to Kroger, with 2,641 stores in just 34 states. Kroger can dominate a market simply by being convenient; whereas Whole Foods is seeing sales decreases. What is Whole Foods doing to build sales and increase loyalty? They’re introducing a loyalty program.
The bottom line is that loyalty programs help increase business and also increase the revenue generated by that business. They help retain customers, build branding and gain free marketing via word of mouth. Whether you do it yourself or have a third-party assist you in administering it, loyalty programs pay off in more ways that you realize.
I’m sure you’ve heard the phrase “Work your pay plan.” It doesn’t matter whether you held a position in sales, service, or parts, this advice has always been considered good. Towards the end of the month, when Sales Managers need those extra units sold on the weekends in order to hit bonuses from the manufacturer, they throw cash bonuses at the salespeople. The same thing happens in the service drive when it comes to tires or other service goals. It’s easy to see how a little extra cash might help motivate staff to work a little harder to achieve a sales goal. Recently a Nissan dealership in the San Francisco Bay Area provided a $30.00 incentive to the service writers for each pre-paid maintenance plan they sold in the service lane. They quickly sold over 250 plans in one month generating over $50,000 in plan revenues. But just as importantly they easily retained those 250 plus customers for another two years of service. However, the next month there was no sales incentive and those same service writers sold only 14 plans. So it is easy to see how engaged employees can either help or hinder a far more important goal… customer retention and loyalty.
The Temkin Group’s 6 laws of Customer Experience infographic contained two laws that, were they not next to each other, could be overlooked as being connected.
“#4: Unengaged employees don’t create engaged customers
#5: Employees do what is measured, incented and celebrated.”
There are three types of employees: unhappy, satisfied and engaged. You notice that I left “happy” off of that list? It’s very simple, really. Your employees are either not happy with their job (whether you know it or not); are satisfied with their job (whether you know it or not); or are an engaged employee. It’s fairly easy to identify a person who is unhappy with their job. They are typically going to underperform or perform at minimum acceptable levels; they may or may not have attendance issues… you see where this is headed? Hopefully, you know how to handle those types of employees. The trick is to be able to tell the difference between someone who is engaged with your company and someone who is simply satisfied with their position. The reason it’s so important is that, as the Temkin Group points out in their 4th law, if your employees aren’t engaged with your company, they cannot create engaged customers.
The difference between someone who is simply satisfied with their position and someone engaged, is that an engaged employee will be a brand advocate. They are emotionally invested in the success of your business. They work harder to make sure that the customer experiences the same feelings they have, and are just as disappointed when things don’t go right for the customer. They also go above and beyond to make it right. They may not have the best solution, but the fact that they are going to bat for the customer means that they care.
If you subscribe to the 5th law described above, there could be an opportunity to include some incentives for customer experience. Many dealerships reward sales reps for perfect CSI surveys, so this idea isn’t foreign. It’s simply that once the perfect survey is rewarded, the incentives stop, so the salesperson moves on to the next customer. The same idea could be carefully implemented long term. Whereby excellent customer service experiences are rewarded or, at the very least, celebrated.
Identifying engaged employees, transforming satisfied employees into engaged ones, and turning around some of those unhappy employees, greatly increases the chance that your employees will then transfer that engagement to your customers. This creates better and more memorable customer experiences. Customer loyalty is based on the law of reciprocity. Provide those excellent customer experiences by having employees who want to give them, and your customers will reward you with their loyalty in return.