Listen in as Jeff Herrera, CMO at Annex Cloud, Al Lalani, Co-Founder at Annex Cloud, and Jonathan Burdette, Global Industry Principal at SAP, discuss the importance of loyalty management and customer retention in an environment that is rapidly evolving due to multiple external factors.
Good morning, good afternoon, good evening to everyone on the line. Thank you so much for joining us. My name is Kwena Mabotja and welcome to SAP Purpose Network Live.
This is a platform where we come together and collaborate with thought leaders and experts around how we can challenge and face and respond to the current challenges at the time. We'd like to welcome you today for the session where today we're specifically focusing on a session around customer experience. The session title today is around how to think about business to business customer loyalty in a time of rapidly evolving world.
With that, we have an esteemed panel. I'd love to welcome Jeff Herrera, who's the CMO of Annex Cloud, to take us through the session, tell us a little bit more about what we're talking about today, introduce our speakers, and moderate our session. So with that over to you, Jeff.
Thanks, Kwena. I really appreciate it. It's great to be on the SAP Purpose Network talking about things that we love, right? We love customer retention, loyalty, B2B, and B2C. That's a hot button in today's environment.
I'd like to go ahead and welcome a couple of really key thought leaders, market strategists, influencers to the discussion. First, Jonathan Burdette, he's Global Industry Principle for B2B manufacturing at SAP Customer Experience. So it's great, and they're a huge partner of ours. So really great to have Jonathan with us. Then also Al Lalani, who is our co-founder and Chief Strategist at Annex Cloud. So he brings a wealth of experience to the market as it relates to this new age of loyalty concept for both B2B and B2C, and as well as the customer retention profiles that we take so at heart.
So welcome, guys. Great to have you here and anxious to have this really good thoughtful discussion in today's current climate.
Yeah, thanks for having us.
Thank you, Jeff.
Speaking of the current climate, guys, let's build a foundation of kind of what we're in. You know, the U.S. economy has contracted at a worst ever 32.9% in Q2. Obviously that's a pretty big challenge. The employment to population ratio actually plunged to 52.8% in May, which means that roughly almost half of the U.S. adult population are unemployed. So obviously big challenges.
Just today, right? Just today, I looked up consumer confidence and it's actually down in August to 84.8% from 91.7% in July. So that sets the stage of kind of what are the market trends that we're all facing.
So Jonathan, I would love to get your thoughts on what are businesses doing differently now given these very challenging market conditions? Obviously it's not the best time to go out and spend a bunch of money to acquire new customers, but would love to get your thoughts on what are they doing differently now in terms of managing these market trends?
Yeah, I think... Well, first of all, thanks for having me. I think what's going on right now, as you might expect, is that in talking with a customer advisory panel that we have within the manufacturing space in particular, everybody who didn't have an e-commerce capability and wished they did, they wish they had invested in it six months ago or eight months ago, are investing a lot in it right now. So being able to sell and transact and service online entirely, to sell online, whether it's in an automated way, or assisting their sales teams to basically be inside sales, was one comment I liked from one of our customers. That all of our salespeople are inside sales people now.
So it's a new way of selling. It's a digital way of selling. It has downsized the personal touches down. The upsides are that there's a lot more data and a lot more trackability.
I think in terms of loyalty and loyalty retention, I think what I'm seeing is customers are obviously very cost conscious. There is some cash hoarding going on. There is reprioritization. So spending money if it doesn't represent a cost savings can be challenging in a company right now.
I think when you look at the total lifetime value of a customer, going out and acquiring somebody new is always more expensive than doing more business or taking more wallet share from a customer or upping their orders or cross selling. These are things digitally that can be done, I think, very well. So I think that companies, especially ones that are seeing this as an opportunity for change, not letting a crisis go to waste, they are investing in things like e-commerce, things like loyalty, and things like improve marketing capabilities during this crisis is what generally I'm seeing.
Okay. I think it's fair to say, though, Jonathan, with regard to, sure, we had to get through the initial shock, right? We got through the initial shock, everybody sort of realized, hey, this is unknown territory for us. There was a recalibration of planning, priorities, budget had to be looked at, examined, and steps had to be taken once the initial shock was over. In other words, you couldn't be paralyzed and not do anything. You still have to compete, you still have to win, and now just the market conditions have sort of forced that.
If you weren't thinking about digital commerce, you are now, right? You are thinking about buy now and pick up later, and you're thinking about curbside pickup, and you're thinking about the value chain that's being created. But the paralysis is just, there's no way to win if you're stuck and paralyzed in the current situation, correct?
Yeah, I would agree. I had a boss who once said scared money doesn't make money. Right? I think that those who invest, those who see this as an opportunity to re-up their capabilities and do things digitally where they hadn't before are getting either a wakeup call or seeing an opportunity to do this.
You know, from retail to CP to our B2B customers, we're seeing that across the board. I would say there's no industry that doesn't have that on the table right now.
One of the things that I would just really quickly add to that in our conversations with various chief digital officers or CMOs, what we're seeing is they had sort of to your point, Jeff, three different plans. So there was the first plan which lasted about 45 days as we got into this, from middle of May to end of April, where it was completely unknown, just stay completely safe, make sure the team's safe, make sure our operations are operational in some capacity, whatever we can do.
Then sort of the initial reality of what's to come set in, and there was sort of a new plan to kind of restart business in some capacity. In many capacities, people are sort of executing those plans now while making sort of their post pandemic plan where the new reality is now in and we know where we're going to be for the rest of 2020. But we still have to plan for the holidays, and we still have to plan for 2021.
So that plan is being executed. Those plans, what we're seeing is, as Jonathan said, digital commerce is forefront, digital acceleration essentially has taken a big sort of leap, and retention and loyalty would be key as well.
So I think just to kind of reiterate those points there.
Yeah, for sure, Al. So, Al, now that we've got you, let's put a spotlight on customer retention, this new age of loyalty concept, things that are being expected of manufacturers and businesses in both B2B and B2C. Obviously, at Annex Cloud, we've asked and we've recommended and we've talked to a tremendous amount of key thought leaders around making sure that there's a laser focus on customer retention in this particular economy. But I think we agree that it's not just when times are bad or times are challenged, there should always be a core focus of making sure that that spotlight on customer retention always exists.
You know, having said that, are businesses doing enough here? Let me give you a frame of reference. In the most recent Gartner 2020 CMO Spend Survey, loyalty was increasing, but still in the grand scheme of where CMOs actually allocate budget, it's really kind of a modest expenditure.
I'm wondering for somebody who has been in your shoes and you've seen quite a bit over the last decade or so customer retention and advanced loyalty applications, are CMOs doing enough here, are businesses doing enough here to really put that spotlight on customer retention in good times and in bad times so that there is a remarkable execution tied to customer retention? I'm curious to get your thoughts there.
Yeah. So I think two different thoughts. One, to the old adage around what Jonathan mentioned, is it costs significantly less to retain a customer than it takes to acquire a customer. So some of the spend is dependent on that. But with that sort of specifically said, we're coming off of a decade of growth. In a decade of growth, the focus is always a little bit more on acquisition. It's just more fun or exciting to kind of focus on those aspects.
But let me sort of take us back a little bit to see what we can learn from 2008 and what we can apply to sort of what's going on now. I'll quote a study from the CMO Council back in 2008 at Catalina Marketing. It did a major study across, I believe, about 685 brands. These include the best brands in the world, essentially the Apples and the Samsungs and the Cokes and Pepsis and many others back then. The study was done across 32 million customers or consumers.
What that study found in 2008, and the study was done in 2009 after the last great recession for consumers in 2008, they found that about 52% of the consumers defected from those brands. Now that's a pretty major amount, but that's not normal for any non-recession year.
But not only that, what they found of off those 52% of people that defected, about close to half of them defected to a competitor because of price reasons, because of some other availability reasons, and so on and so forth. This is sort of what we call avoidable churn in some capacity, if you will. Right? And some of this was unavoidable because of circumstances.
What they also found was companies that focused on retention and loyalty came out of that recession about 20% faster in general.
So if we can apply those learnings from 2008 to now in the current times, I mean, it's not the same. I mean, we completely understand that. But at the same time, some of those learnings will stay the same. The challenges still apply. In fact, consumers' buying index is even lower. Businesses are significantly more effective in the B2B world.
So some of those learnings can definitely apply in terms of focusing on retention early, not waiting until the end. Because businesses, whether it's B2B or B2C, there's going to be defection in some capacity, and controllable churn has to be controlled.
The second thing I would say is a recent thing that we all saw, which was very, very amazing to me, is the airline example. Airlines was an industry that was significantly affected most recently, but both American Airlines and United Airlines were able to raise over $5 billion, in the United States, $6.5 Billion dollars, at a kind of a valuation of close to 3X of that, so close to $20 billion in valuation, for just their loyalty program. So their loyalty program is worth $20 billion.
The entire company is worth like $7 to $10 billion. So the loyalty program is worth twice the entire company's assets. Imagine their airlines, the airport spots, employees, everything else, is worth half of the airlines. Now that's today. That's not the case as always. It's significantly more in normal times. But this can become such a big asset for your company if you develop well these loyal customers and loyalty programs that it's something to think about.
So that's just another point of where this can go as an asset as people are thinking of investing over the next years. To your point of whether we should do this in a good time or not, in a good time, you can grow it, in a challenging time, it can become a major asset.
Then lastly, and I'll quote another one where we saw a study from the January 2020 Brand Keys Customer Loyalty Engagement Index, which was done for fashion sort of companies. J.Crew was a company that was ranked 19 of 20. It fell from 11 of 20 three years ago to 19 of 20, and they just filed bankruptcy. So I think there's a correlation that was done by that index saying there's potentially a linkage between falling confidence there.
So overall, my thought process from a CMO perspective is we can learn from the past times and see if we can it apply to the current times, and we can learn from companies that have built this as a major asset so that this is the right time to build it from that perspective. They weren't doing enough, but now I think we see that in this new plan that I just talked about. There was a significant resurgence of commerce and loyalty, as Jonathan said.
Yeah, well said, Al. Let me expand on a couple of key points that you raised. The first one, on the J.Crew example, it's really fair to say with that spotlight on your existing customers, I'm talking specifically about your most valuable and your most profitable customers, with that I have segmentation and level of personalization that you're able to communicate and add value to, loyalty has become a leading indicator for a lot of these great businesses, these great brands that you mentioned in that Catalina marketing survey. So being mindful of that and making sure that you're able to retain those customers, really important, especially as you look at the viability of the business and your ability as a business to maintain those relationships. Absolutely.
Then also, I love the lessons learned, comments you made from 2008. Now in 2020, you're always talking to our customers and clients and prospects and other businesses, and some of the things coming out of 2020, we've heard very clearly the hard reality of the market. But them recalibrating their business, the things that we were talking about with Jonathan, where they've actually come out and said when they've had to recalibrate, they've landed on loyalty as being the one thing that they would not cut, right? This is the one thing that they would absolutely dedicate more resources to, right? We've learned that as part of 2020.
100%. I think digital commerce and loyalty are sort of those top few things that are sort of taking the resurgence. The other point to what Jonathan mentioned around sort of the manufacturing side, it's important from a digital commerce and loyalty perspective, both of them give them access to first party data of their customers. So they're selling through resellers, they don't know their customer, and now, more so than ever, they need to know their customer. They need to go direct to their customer, whether by direct or at least understand your customers and bring them into your fold, into your loyalty program of your own, so that you can sort of control the communications to them. So, absolutely.
Yeah. For sure. Yeah.
The last six months of 2020 have been this accelerator of years happening when months are happening. I feel like your average business leader, your average brand manager, brand director, somebody who's maybe job considers loyalty or has to consider loyalty, I think they're kind of climbing the learning curve very quickly and steeply. I think they're learning that things like user interface need to be important, that the customer journey needs to be important.
I think financial requirements will get them there with loyalty. Because do I up my ad budget? Do I lower my prices? What are ways that I can get consumers' attention when they're in their homes and it's a free for all between me and my competitors to try and protect share and protect our bottom line?
So loyalty is a great way and I think a very cost effective way, actually, to drive revenue with existing customers that you've already invested the time, the money, and the effort, and the people to get them in the door, and to do things like cross-selling or upselling or subscriptions. Things that you maybe hadn't considered before in your business model, but loyalty can help nudge them kind of in that direction and help protect your bottom line, make your customers more profitable, and increase that lifetime value of a customer.
Yeah, for sure.
Jonathan, let's talk a little bit about B2B, right? Because B2B is obviously a very attractive space. I think it's a $1.3 trillion market. It's growing at 18.2%. We love B2B and all the advantages it brings as it relates to new experiences. There's a lot of learning that takes place with B2C. The digital component is really remarkable and there's a tremendous amount of upside.
Now, buyers are a little bit different than consumers, so we should talk about that. In fact, what do buyers want in B2B most from manufacturers? What can manufacturers do to make these buyers even more loyal?
I would love to engage in that sort of dialogue with you. SAP is obviously one of the best in the business around B2B and customer experience. I would love to get your thoughts there and have a discussion with Al and myself about it.
Sure. Yeah. So I think having come from a B2C background and then moving into B2B, kind of straddled both of my career, the difference that I've noticed is that while in B2C the accepted consumer belief plays in heavily. You know, I like this brand. I trust this brand. Those come into play in B2B, but it's also I'd say an additional layer of can you save me money, can you make me money? A very rational sort of financial argument. Then it's about how easy are you to do business with? Basically another way of saying how low cost are you to do business with? Easier saving time.
So I think from a B2B perspective, it's an interesting mix of B2B buyers have an expectation of a experience like they have on their consumer side of their lives, right? Every procurement person or buyer in B2B is also a consumer who goes home and buys on Amazon or somebody else, so they have those levels of expectations. But they also have the expectations of things that we don't as consumers, like service.
So usually in our consumer lives, if something breaks, you replace it. Sometimes when you call the company to complain, they send you a new one because the cost of helping you to fix it outweighs the cost of mailing you a new one. That is not the case in B2B, right? There's a lot of repairing, fixing. There's a longer term, kind of more in depth, vendor relationship to service and sell.
Then there's an additional layer of complexity because there's things like a tiered pricing, so different pricing levels for different purchasing quantities, discounts, co-marketing funds. I think all of that comes into play to add an additional layer of complexity that I think some B2B players have been a little intimidated by the thought of a loyalty program because they're already dealing with so much complexity.
The insight in my view still works, right? It's still easier and more cost effective to upsell or drive behaviors that you want in a B2B buyer for the same reasons as a consumer. It just has to make financial sense and you have to tick those boxes in answering their questions about how does this affect my marketing accrual with you, or how does this affect my tiered pricing if I get this and I do this. So you have to account for that complexity, but it is well worth it. Because the alternative might be lowering your prices, which affects your gross margin, or increasing your trade show presence, which is a cost, or hiring more salespeople, which is a cost, when really what you might need is a loyalty program to help you do those same things, if that makes sense.
Yeah, that's very interesting.
Al, I'd like for you to comment on this, too. Because when we think of B2B, and we've had a tremendous amount of experience working with businesses who are operating in the B2B model, there's some components Jonathan articulated beautifully around kind of the blocking and tackling of B2B, right? You know, negotiating pricing, and tiered pricing tables, and buying authority, and payment methods, invoicing, et cetera. But there is still the advocacy element. At the end of the day, it's about value, it's about quality of service, and products and services that create this new age of loyalty that we've been talking about for quite some time.
So there is that. Then there's also the content elements that are so important in B2B, IE training, video, educational things tied to the products or services that are so important. Warranty, right? Being able to dimensionalize the warranty provisions of products, et cetera, that makes it easier for B2B to handle and manage.
You know, we'd love to get your thoughts on that, as well, tied specifically around this new age of loyalty concept around B2B.
Yeah, no, this is great. I think for me, I divide sort of B2B. Just like B2C, B2B can be a tremendously wide sort of array that we group together, whether it's different industries that fall into B2B or different sizes and types of customers that are dealt within the B2B context.
So if I may divide it into kind of three kind of broad groups, not by industry, but by size of customers off that B2B company, if the company is a B to large B, so I have, I don't know, let's say 10,000 or less customers in a broad strokes context, and primarily managed through salespeople that have relationships with those customers in some capacity, for example, just in a realm of context, if that's sort of how I manage my relationships with my end buyers, then from a loyalty context perspective, this could be sort of managing it in a different way.
It may not be a traditional points-based loyalty program that we all sort of think when we think loyalty. It may be a rebate program. It may be a access program. It may be some other benefits that you get as part of that membership, so to be. It may be based on how much you buy and when you buy and certain other sort of pieces that get tied into this aspect of loyalty put together in a framework, so to speak.
So in general, the term of context of loyalty may not in this case apply as a points program. It may be a very different structured program, but a loyalty program, nonetheless, because at had the end of the day what you're trying to do is get these end buyers together through a sales person, through a middle channel, into embedding sort of a common construct for retention for your company.
Then the second sort of type would be sort of when you have a larger set of customers, maybe you have a hundred thousand customers, but maybe 10,000 of those are managed through salespeople, the rest of them are longer-tailed customers that maybe less touches in that aspect. So you might have to divide those high touch customers differently than the low touch customers where you may do a little bit more marketing automation based on certain things.
So examples, like you mentioned, where invites to an event, or education series about your products, or coming and sort of understanding what's latest and greatest with your company with the pandemic and how you're servicing your customers differently. You know, giving that education to that long tail in a constructive manner, and once the buyers consume that information, giving them some sort of a benefit for doing that, knowing that activity or experience, so to speak, in the customer journey is going to yield to retention is an important aspect.
Then you have sort of the B to very small B. You have hundreds of thousands of small B2B customers where you kind of treat them, you know, they are mom and pop shops, for example, you kind of treat them as a consumer in their own right in some capacity. At the end of the day, we all have to remember these are people buying from us, even though there are businesses, and so those people kind of are directed and sort of energized in different ways. But in that sort of other realm, it may be very similar to B2C context.
So in that realm, you might be doing things that you do traditionally in B2C. You might have a points program. You might have experiential actions and benefits that are related similar to B2C where you're giving out gift cards, you're giving out sort of benefits, which you can't do in another B2B context.
So I think if you divide those into those categories and then you start understanding what the motivations are, number one, and what benefits they would like to get because of those motivations, and then lastly, what behaviors drive that purchase and what actions we need to do to drive those, that's the context of a loyalty program. It doesn't matter what sort of realm you're in. You take the actions you want to drive, you put the right incentives in place to drive those actions, and then you measure and monitor whether or not how you'll restructure that program, that becomes a great loyalty program for B2B.
Yeah, outstanding. Go ahead, Jon.
Great points, Al. I think, honestly, the biggest challenge for a lot of B2B buyers is their intimidation of the complexity of it. But really, I think the first step that makes it so much simpler, like you very, I think, eloquently said, is recognizing what situation you're in with your customer base. Because once you do that, the task kind of, as you did a good job laying out, kind of presents itself, and you're able to sort of navigate what situation you're actually in. So I thought that was really, really good.
Yeah. Yeah, for sure.
Guys, we're getting close to the end of our session here. I would like to just field one last question, and we'll keep it just to a couple of minutes. But I will say this, too, Jonathan, from a TX perspective, the bond, the partnership between buyer and business, or buyer and manufacturer, the ability to extract insights and be rewarded for those insights tied to research and surveys and that partnership is really opportunistic for B2B. That's part of building that brand connectedness.
The last thing we should touch on, and we'll close with yourself, what are some of the most powerful ways for businesses to emotionally connect with their most valuable customers, their buyers? What drives really high perceived value and CLTV, to Jonathan's earlier point? If we could talk to that for just a minute or so, I think that will put a nice little bow on this session.
Yeah. I think from a B2B context, I think we have to sort of empathize, to Jonathan's point, that sort of puts forward the situation of where your company is, but also understand the situation your customers might be in at this point in time. So what can you do to help them with their businesses?
Those incentives and benefits and sort of essentially what you're putting forward to your customers may be very different than what they needed before. So maybe education was important before, and it's still maybe, but at the same time, maybe there are certain other sort of needs that your customers have at this point to be able to do their businesses well using your products and services. So if we can sort of take that into action and apply that as part of that loyalty behavioral index as part of the customer experience, and if we can provide that kind of value, that would be awesome, right?
So taking from the B2C context, imagine an airline where they're extending your status. That's important for consumers now because I can't really fly and I want to keep my status next year. So what can you do parallel in a B2B universe where you can help your buyers and understand sort of what they're going through and help them there would be my sort of number one tactic in this B2B world today.
Jonathan, any final points before we close out our session?
I just think that loyalty is something that B2B in particular, I think, will be continuing to look at, and the kind of fast movers and first movers will be the ones who consider it. Because it makes good financial sense, it can help you increase your profitability with existing customers, and customer retention. So I think this is important. That's why I'm definitely focused on it for my B2B customers.
That's right. We are going to be out of this recovery, and those that have invested, invested smartly, looked at their existing customer base, they'll certainly be on that fast path and get first mover advantage coming through this recovery. So we were excited about that.
Gentlemen, thank you guys so much for the time. Really good chatting with you. Lots of great insights here.
Thank you very much, Kwena, and we'll send it back to you.
Thank you so much for the great insights and just the expertise in terms of how to think about B2B business in terms of the current situation. We really appreciate that, so thank you so much for joining us.
For everyone on the line, yes, of course, we continue to host sessions every week here on Purpose Network Live, so please join us again. We will be hosting another session on Thursday around One Billion Lives, which is an initiative that SAP runs, an internal initiative, around innovation for change and positive change.
So with that, thank you, gentlemen. Thank you, Jeff. Thank you, Al. Thank you, Jonathan. Appreciate you coming on board and sharing your insights. Yeah. Thank you to everyone. Keep safe and keep healthy. Thanks.
Co-Founder, Annex Cloud
CMO, Annex Cloud
Global Industry Principal, SAP
Since 2010, Annex Cloud has provided industry leading loyalty solutions to more than 250 leading brands and retailers, including Jenni Kayne, Hewlett-Packard, Bed Bath & Beyond, e.l.f. Cosmetics, Olympus, Sugarfina, Mizuno, MacKenzie-Childs, VF Corp., with the ability to engage tens of millions of their customers one-to-one at scale.
The Annex Cloud platform provides fully integrated Customer Loyalty, Referral Marketing, and User Generated Content (UGC) solutions that seamlessly work together to optimize the customer journey and deliver a unified customer experience that is designed to accelerate revenue growth, retain valuable customers, increase average order values (AOV) and drive repeat order frequency.
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