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I have for some years now followed a UK newsletter called the Wise Marketer, which does a pretty thorough job (or so it seems to me) of covering the world of loyalty programs.
Loyalty programs are generally thought of as having been invented in the 1970s by the airlines (particularly American Airlines, I believe—someone confirm?). They have always had a dual purpose: to reward and encourage exclusive buying behavior, and to provide a source of data about buying behavior.
They have also generated a new approach to marketing, one aimed at tapping a latent desire for status among many consumers. An anthropologist would be fascinated by the psychology and behaviors of, say, management consultants around the airport gates and airline clubs. Certainly companies have spent a great deal of money on these programs, trying to make their program distinct in their ability to confer status and prestige.
So this paragraph in the most recent newsletter made me raise my eyebrows:
Clearly, the loyalty market has reached a state of maturity in the airline, hotel and car rental industries, with very few such loyalty programmes today being able to claim genuine competitive differentiation. Simply matching the proposition offered by the competition is not enough to create lasting customer loyalty. When all programmes within a sector are basically the same (e.g. they all have online enrolment, an award chart, a welcome bonus, double miles promotions, and so on), customers tend to react with indifference.
This isn’t really new; I remember hearing ‘customer loyalty in the airline business is about 20 minutes,’ 15 years ago. But it’s jarring nonetheless, because if one of the primary purposes of a marketing program is to differentiate the company, and the net result of several decades of that program is to eliminate differentiation among the companies—well, that’s a marketing poster child case for foot-shooting, isn’t it?
Michael Porter pointed out something similar years ago: the tendency to seek out industry ‘best practices’ is anti-strategic. That’s because even if the practice is ‘best,’ if everyone does it—then no one is strategically different. And part of the essence of strategy is to be distinct.
I’m a little bemused by all this, because the term ‘loyalty’ has long been abused in business. ‘Loyalty’ implies an intensely personal relationship, and what ‘loyalty programs’ have devolved to is anything but personal.
Ironically, the one thing in today’s business world that truly is differentiable is also that which is truly personal. You can copy someone else’s programs, policies and procedures—but you can’t copy their relationships. Those are sui generis, unique.
Back in the early 1990s one of the truly prescient business books of our time was published: The One to One Future, by Don Peppers and Martha Rogers. It made the very sound observation that technology would allow us to combine scale and customization, at the individual human level. Market segmentation would max out—at a one-to-one level.
I remember being very excited to hear that insight. This was around the same time that Loyalty was being talked about by Fred Reichheld and people at Harvard Business School. Connecting the dots back then would have suggested that the way to successful companies would be to create great relationships, which then resulted in loyal feelings, behavior, etc.
What’s happened, of course, is not that at all. We have succeeded instead in publicizing the private, trivializing the profound, and pretty much turning the potential of one-to-one relationships into a cacophony of mechanical, status-climbing must-haves. Think platinum cards, ring-tones, ‘how’m-I’-doing’ online CSR surveys.
The irony is: at a time when every loyalty program looks alike, when ‘personal’ service is mechanized, and when everyone is a VIP—that’s the very time at which truly personal, one-to-one relationships really stand out. They are even more differentiable than ever, because most companies have forgotten what that really means.
Dare to be real. You might be shocked to find out how much your customers like it.
This from Trust Matters friend Sarah:
I recently attended my step-grandfather, George’s, funeral in Connecticut. His business partner, Phil, spoke at the memorial service and what he said really sort of blew me away and I wanted to share with you…
Of course Phil shared many lovely memories of George. One thing struck me in a profound way; Phil talked about the trust that George developed with his clients.
George had founded a CPA firm in 1962. The firm grew to be quite successful. As I sat and listened to Phil share stories about the firm’s success, he matter of factly boasted about the firm’s technical proficiency.
But then, to my surprise, Phil talked with incredible heartfelt-ness (sp?) about what the firm really does: listens to their customers. He talked about the fact that they prepare tax returns and financial statements, etc… but that what they really do is listen to their clients. I cannot recreate what he said – though it struck me as so humane as to counter the pervasive “accountant” stereotypes.
Anyway, here is what I really wanted to share:
• George died at 84 years old
• He founded the firm when he was 37 years old
• At his wake on Monday night an elderly woman introduced herself to my family and indicated she was George’s FIRST client! She is still a client of the firm to this day and whenever she goes into the firm she takes lunch for the partner with whom she meets!
• At George’s funeral there were literally generations of customers…there were people there to honor George who had been his client(s) for 47 years – nearly a half century!!! In one instance there was a family with 3 generation’s of clients. That is cool.
• His clients were acknowledged during the service along with friends and family (and many, many clients were there).
There are thousands of tips and tricks out there to gain repeat business, increase ‘loyalty,’ tweak your customer acquisition rates. But they are all aimed at improvement in the aggregate, and usually over a short time frame.
They forget a few simple facts.
The greatest client loyalty is personal–not institutional. It happens one person at a time–not one segment or geography or business unit at a time. It lasts: not quarters, but decades.
Real loyalty isn’t bought, tricked, or tweaked. It doesn’t trend up or down monthly.
Yes, it shows up on your income statement. But where it really shows up is at your funeral.
Dear Wall Street CEO:
You’ve been taking it on the chin lately. On the other hand, the only CEO Obama has fired recently came from my side of town–Main Street—so maybe you’re not so bad off.
I have a proposition for you. For both of us, actually.
I, a Main Street CEO, am going to show you, Wall Street, how to create some real value out of “thin air.” I know, you think that’s your schtick, but hear me out.
From here on out, I propose to tell the truth about our earnings.
It’s that simple. We tell the truth about our earnings–warts and all. You come to believe it. You then no longer shave your estimates of our quarterly earnings, because we will no longer smooth them by moving things offsheet, or by tweaking policies from our financial subsidiaries.
Call it the “truth factor.” It really isn’t, though. It’s simply reversing the “suspicion factor” you’ve always had in place. Remember “quality of earnings?” Well, we’re going to provide the highest quality of all; not conservative accounting, but transparent accounting.
That’s the kind of financial value creation I know you understand. But let me go further—this policy is also going to create real value—as in higher productivity, lower costs, greater customer retention, high quality, better customer service—all that good stuff that actually drives business. Here’s how.
This morning, I’m going to announce company-wide that we are no longer including short-term incentives in our performance assessment plans. Here’s why.
Every sentient businessman knows that the dumbest way to run a business is to change plans every 3 months. The smartest way to run a business is to develop a long-term plan, based on long-standing business principles and policies and on core values. Then execute on it.
It is long-term plans, executed well, that produce the best short-term results—quarter after quarter after quarter.
But somehow, in my firm and nearly all others on “Main Street,” we lost track. It started out by our saying, “if you can’t measure it, you can’t manage it,” and “what gets measured gets managed.” So we started measuring everything quarterly (OK, I admit–way shorter than quarterly).
Maybe we got that from you guys.
Now, it pains me to admit this, but somehow—I know, it sounds crazy—we just flat lost track of the simple idea that long-term management produces the best short-term results. And we started thinking that because we were measuring short-term, we had to manage short-term. After a while, nobody would take a 3-week risk. Or honor a 4-week deal. Or sign up for a 6-month customer plan.
Like I said, dumb. But it’s the truth. It’s what we did.
But no more. From now on, we’re managing for the long-term. That doesn’t mean we’re giving up on metrics—precise metrics are critical for all kinds of things, like trend analysis and trouble-shooting. It’s just that using them like a steel cable linking to performance pay and quarterly earnings is not going to be one of those uses.
Our CFO is going to stop focusing on quarterly numbers within and without the firm. Internally, we are going to very clearly explain the long-term basis for performance assessment and goal-setting we will be using. After that, anyone found to be rewarding behavior solely for the sake of short-term numbers will be hauled before the management committee and asked to justify it in strategic terms, or to explain, "What part of long term management for performance do you not get?"
And mark my word, our earnings will go up. Because long-term management fosters relationships, trust, continuity, efficiencies, effectiveness, scale economies, customer loyalty, and employee engagement. And that makes money the old fashioned way–by creating real value.
Externally, you and yours are going to have deal with greater earnings beta from us. The quarterlies are going to be more volatile. But we’re done interpreting numbers for you.
From now on, you have to be good enough at what you do to discern the underlying pattern and explain it (hint: it will be generally NorthEast). We’ll tell you up front our policies, and show you over time how we live up to our pledge of transparency.
So my question to you, Mr. Wall Street, is do you have the guts to play the new game? My cards are on the table, as of this morning. Where are yours?
The phrase “attraction and retention” is so entrenched in business-talk that a Google search with quotes around the terms turns up 306,000 hits.
That’s a lot. But it’s dwarfed by the active-voiced “attract and retain,” with 2.07 million hits.
If memory serves, the phrase comes out of the “war for talent,” initiated in 1997 by McKinsey.
Was that war ever won? Apparently not. In 2007, Bob Sutton was announcing “The War for Talent is Back.”
In fact, as of just a few months ago, McKinsey was announcing The Return of the War for Talent (“It’s Baack!”).
But, as of two weeks ago, according to search firm Morgan McKinley, the War for Talent is Over.
The War for Talent has had more comings and goings than Cher has had farewell tours. So it goes with business concepts that mean whatever you want them to mean.
(For a really wonderful read on the abuse of “war for talent,” read Malcolm Gladwell’s article The Talent Myth.)
But I digress. The WFT is fought on two fronts—finding talent, and keeping it. Despite the eerie parallels with roach motels, the language "attract and retain" has stuck.
“Attract” has taken a back seat to "retain," and it’s not hard to see why. Consider the well-established economics of customer loyalty. Employees form relationships and gain hard-to-replace skills, referred to in distinctly non-human terms as “relationship capital.”
Yet, just as the best defense may be a great offense, the best retention strategy may be a great attraction strategy.
For one thing “retention” often lives down to the very behavioral language used to describe it. Think handcuffs, golden or otherwise; do-not-compete clauses; hands-off clauses in search firm contracts. More benignly, flex time and use it or lose it vacations.
But more importantly, think what a really fabulous, unbelievable attraction proposition does for retention. Suppose you had an extraordinary new-hire offer. Tons of money, social good, ambience, benefits, advancement, work-life balance, cachet. Maybe like Google a couple of years ago.
Why would someone leave such a place? Not for money, or promotion, or lifestyle. More typically it’s because their life goals had simply changed.
It happens. Twenty-somethings have kids. Project management loses its appeal after being the meat in too many sandwiches. You cannot “retain” people whose life goals have shifted. And if you keep only the employment contract, they lose their enthusiasm.
But what about the greatest attraction pitch of all—"We Care about YOU."
If you could believe a firm really cared, if they could prove it to you—wouldn’t you want to join that firm? And stay there, until they were simply incapable of meeting your changed needs?
I’m saying yes, of course you would. They catch is, why would you believe it?
Well, suppose the firm paid a recruiter to hire you away from them? Suppose they paid you massive severance packages should you decide to leave? Suppose they developed alumni programs, like universities with “graduates?”
The really fine consulting firms—Bain & McKinsey, for example—truly value their alumni—you are a lifetime member, you’re just working the client side as an alum.
But even more sharply, think Zappo’s. Here’s one more great Zappo’s article, from Fortune’s January 22 issue
Zappos bribes trainees to leave. Few do. When Zappo’s recently had to lay off 140 people, they were extra-generous in terms of severance. They offered 6 months of paid COBRA health care. And so on. Remember, these are not people Zappo’s is trying to retain–these are people they’re letting go.
eBay gets it. "How you treat the leavers has a strong impact on how the stayers feel about the company," says Beth Axelrod, eBay’s SVP of human resources.
Exactly. How these companies attract—a values-based culture that actually values customers and employees, not just their abstract corporate-finance-centric “relationship capital”—directly drives their success at retention.
Don’t focus on retain—that’s about the company. Focus on attract—that’s about the employee. Then live the values.
It’s the paradox of trust. If you actually set someone else’s priorities above your own, you get back boatloads of what you want.
But only if you’re willing to put your motives second. You actually have to care.
Speaking with a marketing firm today, it struck me again how deeply embedded within the business culture has become the notion of measurement.
The obsession goes well beyond the mantra “if you can’t measure it you can’t manage it” (which is nonsense on the face of it). It has become a knee-jerk reaction to a new idea, concept, or perspective. In particular, ideas having to do with people.
Remember these workplace slogans?
- The war for talent
- People are our most important assets
- Customer loyalty
- Customer relationship management
- People development
- Human capital
- Employee engagement
Every one of these ostensibly business buzzwords has been subjected by the business world to death by measurement. The prevailing wisdom asserts that if you can’t figure out a metric for something, it isn’t worthwhile; for all practical purposes, it doesn’t exist.
(For those amused by analogies, there was a school of philosophy in the ‘20s centered around the “verifiability criterion of meaningfulness,” which said if you couldn’t verify it, it sort of didn’t even exist. Which certainly ruled out god and poetry, probably trees falling in an un-peopled forest, and quite possibly any interesting sex life.)
The average view in management today is that none of those “humanistic” terms have any utility—or even any meaning—if they can’t be quantitatively linked to economic performance. Of the firm. This quarter.
Hence “measurement” becomes the handmaiden of a means and ends argument. The end is the strategic/financial performance of the corporate entity to which you swear fealty. The means are—well, any of those human-type things.
Hence you hear the most deeply human virtues “justified” by the numbers—as if they weren’t justified as ends in themselves.
Like Pavlovian dogs, we have come to substitute “measurement” as a proxy for “shareholder value.” Ring the “metric” bell and we salivate for sustainable competitive advantage. Because after all—how can you argue against measurement? If you can’t measure it, you can’t manage it—and so on, and so on.
Unlike P.T. Barnum, I am constantly amazed at the ability of business in the past few decades to subordinate the most advanced, human, even spiritual concepts, to a “greater good”—the enhanced economic value of a non-human entity called a corporation.
I first heard it when someone said, “Trusted advisor—that sounds like a good idea; anything that’ll increase share of wallet, I’m all for it.”
I hear it again in the oxymoron "human capital."
I see it in lenders and borrowers alike walking away from loans because “it no longer adds up.”
Trust happens to be a fabulous economic strategy—the strategy for our times— don’t get me wrong. But if your only reason for being trusted is to make money, then nobody’s going to trust you. It’s that paradox thing.
Well, sounds good, but—you know—how you gonna measure it?
Come back to me when you can make that love thing work on the Street, in a business process, or in a marketing campaign. Show me the love levers, the love success factors (LSFs).
Have you got some love diagnostics so we can do a love gap analysis and a love needs assessment? You need to break it down with some behavioral metrics; what are best practices love behaviors?
Have you got something that really makes the business case for love? Who out there is a success story, really doing the love thing and making a ton of money at it? How can we be sure love isn’t just another fad?
How fast can you roll out the love campaign?
What’s the payback?"
I saw a new book out the other day called "Spiritual Capitalism." I haven’t yet read a word of it; I’m a little afraid to do so. I can conceive of how it might be a good book, but I’m suspicious it’s going to justify spirituality on the grounds that it makes money. Which spirituality does, but if making money becomes the end, then you end up not just spiritually bankrupt but not so good in your checking account either.
There’s nothing wrong with measurement per se. In the long run, measures work and are meaningful. A great idea will measurably win out in the long run. But what results from repetitive microscopic measurement tends to be just the belief that people exist for the company—not the other way ‘round.
To the American ear, the British occasionally come up with the most delightfully curious expressions (I suppose it works both ways).
Some of my favorites: a “cheeky pint,” and “chuffed,” as in, “I was bored to tears at the ballet—but then I caught Prince Charles’ eye, and he motioned to me to sneak outside and join him for a cheeky pint of Guinness. We had a blast—I was really chuffed about it!”
Add a new one (new to me, anyway). The BBC TV breakfast show recently introduced a story on credit cards by saying, “There’s no point in being loyal anymore—it only pays to be a rate tart.”
A rate tart. So that’s what it’s come down to.
It shouldn’t really be surprising.
Fred Reichheld’s 1991 book The Loyalty Effect summarized work in the 80s by himself, Bain & Company, and several thoughtful Harvard Business School faculty. Re-reading the preface 15 years later later is enlightening:
We found we could not progress beyond a superficial treatment of customer loyalty without delving into employee loyalty. We found there was a cause and effect relationship between the two; that it was impossible to maintain a loyal customer base without a base of loyal employees; and that the best employees prefer to work for companies that deliver the kind of superior value that builds customer loyalty.
We then found that our concern with employee loyalty entangled us in the thorny issue of investor loyalty, because it is very hard to earn the loyalty of employees if the owners of the business are short-sighted and unreliable.
Finally, predictably, we found that investor loyalty was heavily dependent on customer and employee loyalty, and we understood that we were dealing not with tactical issues but with a strategic system.
The credit card industry was a prime example for early loyalty research (MBNA in particular, if I recall), and “loyalty” is a term used heavily in financial services these days.
How, then, did a focus on “loyalty” yield today’s “rate tarts?”
Very simply, the case of “loyalty” is Exhibit One in a lemming-like rush by business to over-stress three simple concepts:
1. Profit is a measure of business activity effectiveness
2. Measurement is a valuable tool for management
3 . Activities can be disaggregated into smaller, measurable activities.
Those reasonable beliefs have metastasized into these distorted versions:
1a. Every business activity has value only insofar as it increases profit
2a. If you can’t measure something, you can’t manage it
3a. Anything worth measuring is even better measured in shorter durations and smaller units.
This extreme thinking has meant that the management of business these days is centered on short-term profit manipulation—not on long-term value creation.
Ironically, this is an area where political “liberals” and “conservatives” agree—their only difference is whether they consider it a sin or a virtue.
It was only in 1991—just 17 years ago—that we saw a different view entirely, a view that “we were dealing not with tactical issues but with a strategic system.” In only 17 years, that viewpoint is nearly gone.
In that time, almost every major strain of business thinking has moved in the direction of shorter measurements, more separation between employees, customers and investors, and more emphasis on reducing everything to its impact on the bottom line. Think CRM, collateralized debt obligations, outsourced recruiting, private equity, synthetic hedges, flipping companies, IPOs.
Most ironic of all: go back to the creators, the originators of loyalty programs—the airlines’ frequent flyer programs. Since frequent flyer programs’ profitability is measurable and separable, profit-challenged airlines are now thinking of selling their own frequent flyer programs to third party buyers.
This is the end-game; not just to outsource the management of “loyalty,” but to literally put a price on it and sell it. The buying and selling of “relationships”—it’s beyond absurd metaphors.
A Rumanian expat in the 70s explained to me the difference between the Russian KGB and the Rumanian Secret Police: “The Rumanians think they can corrupt you with sex, blackmail and money. The Russians are more experienced; they just cut to the chase and lead with money—it trumps the others.”
As credit card and other companies give customers more experience in the cynical management of "loyalty," why should anyone be surprised that the result is "rate tarts?"