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Market Movers Discussion on How Important Loyalty For Business and The Credibility of Loyalty Programs

In this video, Jeff Herrera, CMO of Annex Cloud, and John Bartold, Co-Founder of PIVOTL cx, host a rousing discussion about how the current pandemic has changed business across the board. They review how important loyalty is now, more than ever, for companies on both sides of the spectrum and discuss an example of how companies are surviving based on the credibility of their loyalty programs.

Transcript

Jeff Herrera:

Hi John, how are you? It's great to see you today.

John Bartold:

I'm doing great, thank you, and good to see you as well.

Jeff Herrera:

Hey, thanks for making the time. We've kicked off the Annex Cloud Market Movers series to be proactive and really get out there with a lot of influencers, market strategists, analysts, and talk more about how are we going to get through some of the challenges, and God knows we've had our fair share of challenges in 2020. What are the things that we should highlight? What are the insights we should talk about related to customer retention and customer experience? And these are the things we just want to get out there and let people know, "Hey, we're mindful of these things. We've been able to strategize about these opportunities and provide some insight to brands and manufacturers and retailers." That's the beauty of this. So this is the point of us coming together and making this happen.

John Bartold:

Okay, good.

Jeff Herrera:

So let's kick it off. Let's talk about a current market trend that we're seeing in 2020. Obviously Q2 was not good. We saw that the US economy actually contracted at almost 33%. That's the worst ever in Q2. The employment issue, of course, 30 million plus, almost half of all us adults are not employed. So there's a lot of constraints and challenges tied to disposable income. So all those things considered, it's not the best time to go out and acquire a bunch of new customers. I don't see how that's feasible with money.

John Bartold:

Yeah, this is not exactly the time to acquire, unless you're one of those essential businesses where just because of the conditions and I guess one of the things that's really different about this recession than maybe some of the other ones... I mean, beyond the fact that it's the worst we've had for our lifetime, but it's very different in what caused it. There was something else externally, it wasn't an economic factor that caused what we're going through. It was something else that led the economic factor, and there were a lot of conditions around that. So there's a lot of environmental factors we have to think about. So it really impacted, yes, the workforce a lot, especially in those small businesses, because a lot of unemployment is tied to the fact that because of the health concerns, the businesses couldn't be open and that just created that problem that drove you in employment which then pulled down a lot of the economy.

So it's not a great time to acquire, unless you were one of those that was essential, and there the acquisition is happening naturally anyway. For everybody else, it's really been a matter of how do we serve the customers we've got better. So loyalty took a back seat during some of this, and rightly so, because it was more about how do we serve the customers, because we had all these new constraints. I mean, whoever thought that curbside pickup would become all of a sudden the piece that it is, and the technology that's required to make that happen, the process changes, everything else. So yeah, it's not the time to acquire, it's the time to think about when to innovate, how to actually make that customer experience better with the conditions you've got.

We are now getting to that point though, where... How do we start to bring other businesses back, and a lot of that's going to rely on our loyalty programs. Who were our customers and how do we get them back? And in fact, for some of those that are non-essential that have lost customers to a certain degree to somebody that was essential, that was still open, how do you get them back? I mean, Walmart was lucky. They had grocery plus they had all the other whole goods, so they stayed open. So while retailers were closed, Walmart became a place that that could happen. So what spending was done was getting done there or at Amazon or at Target. You've had a lot of businesses have record years compared to last year. Sales were up quite a bit. Then you've got the other side of the coin, which is in really struggling times, and we're going to look back on their loyal customers as this opens up again and how do we regain and rebuild that loyalty?

Jeff Herrera:

You hit on something that I think we should just a chat about too, is we're not in the non-essentials business. We're in the non-essentials business, that's what we do. So that's really important for a lot of these major brands out there that are not selling grocery related items. They're not selling toilet paper. The things have to keep everybody going day to day. So what could be curious, because whether you like it or not, the transition to digital happened so fast for a lot of these, they had no other choice. They had to get online in order to get through the challenges of this business. What are they doing differently? Because you mentioned curbside pickup. That's an opportunity. So that's another touch point in the customer journey. What are the things that they're doing right and what are the things that they need to do better as it relates to this new digital economy, this retention economy, because they were forced into this in order to make sure that they're nailing the right customer experience across every touch point in that digital customer journey?

John Bartold:

There's some great learnings there. I mean, the first thing is that we were forced into it, and it was interesting to watch. There were some brands that said, "We've got to find our way through this. We've got to innovate." There are other brands that said, "We're going to get back to normal. We're going to wait and see." Well the guys that sat back and said, "We're going to wait and see," are really scrambling now to try to figure out how to catch up. Once it got into it though, they had to think through a lot of stuff. And what's interesting is how agile they became. We've talked about agile for the last four or five, ten years as a way to go, and it's amazing how agile we became.

What I think is a miss though, that I've really been disheartened about by a lot of brands, I mean, Starbucks is one that I have seen that's done a pretty good job of it, is we are innovating so rapidly new ways to do things, not necessarily engaging our loyal customers to help us figure out how to do it and to do it better. The lack of surveys. We talk about touch points and how to build relationships or how to build emotion around a brand. I mean, to get people involved in doing things like that is really important. And the number of surveys... I was surprised when Starbucks first opened up, I went to a Starbucks, and it wasn't five minutes I outside the door and I received a survey. How was your experience? Was the flow okay. Was the service okay? Did you still feel like the barista paid attention to you? It's one of the few brands that I've seen that have done that, and yet we're all trying to do that.

So then the other part of that is that the technologies we have today are just phenomenal in terms of the data capture and to understand things. So when you talk about the customer journey or the experience, what you can do today with an artificial intelligence tool, or with putting in all of the data and then actually seeing the mapping and seeing where there are constraints in the flows, where there is the probability of a good experience versus a bad experience based on how the flow is set up. I don't see a lot of brands getting there yet. Maybe it's because we're still in that scramble mode, Jeff, just trying to get there. But at some point, we got to get back out to talking to our customers and getting their direct feedback and actually getting them involved in the process, because once you get ownership in the process, you build the emotion. It's built for me.

Jeff Herrera:

Yeah, I think you just... And that's a good segue into our customer retention, a laser focus on retention and loyalty. I do want to hit on that because you talked a bit about that value equation, what this means. Obviously we think, selfishly, we think, and we've been talking about this in March is, this is a retention economy. This is the time where you have to put a laser focus on your existing customers. Now having said that, it's not just, "Hey, let's wait until there's some catastrophe. Let's not wait until something goes horribly wrong." We think there should be a seat at the C-suite that says, "Hey, this is our chief of loyalty. This is our chief of customer retention." That's how far we think this has to go, and we'll talk about an example with Kroger in a minute.

But I wanted to get your thoughts on... Is this a bit of a wake up call for brands and manufacturers that should be thinking about customer retention in a brand new light? Obviously we understand acquisition gets all the headlines, but we said that customer retention actually pays the bills when you think through what that means. So I wanted to get your thought on, we think this is a bit of a wake up call. We think this is a lot of opportunity for businesses to do more, much more with customer retention and really elevate it as a strategic focus within the company. And I wanted to get your thoughts on that, given you been doing this a long time like us and I wanted to make sure people have good perspective.

John Bartold:

It's interesting, I have been doing this for a long time and it's always interesting to me, the ebb and flow of loyalty over the decades. It's important. It's not important. It's transactional. It's emotional. It's this, it's that. At the end of the day, I think what we all know is that a relationship with the customer has value. And it has value that can help drive the business. And it is about that retention and loyalty. I mean, I go back to Fred Reichheld when he first wrote the book, The Loyalty Effect. That was supposedly a wake up call. Jeff, that was 25 years ago.

But what I can say is that every recession that I've been through, those brands that paid attention... And I launched a lot of loyalty programs after the 2001 recession. In fact, Best Buy was one of them. That's when the rewards came about, recession. You've got in 2008, 2009, there was Walgreens, there was Dunkin brands, DD perks. There was Domino's. The importance of the customer, retaining the customer as you come out of a recession becomes much more amplified. It seems like we recognized it then, and I think you'll see a lot of people paying attention to it. Those brands that really hone in on it, though, and really understand it, they've been there forever. If you look at studies by McKinsey or Bain, those companies that are more loyalty focused or the broader umbrella of customer centric approach, they consistently outperform over a period of time those brands that aren't. There's plenty of evidence there.

So it's just getting to it. And I think that the challenge, it is that customer lifetime value, it's that longer horizon that we as businesses have a hard time dealing with. We need things today. We need to drive the next quarter. And we just don't necessarily have the patience, or I would say sometimes the understanding, the skill. Now your question was really good about shouldn't there be somebody at the C-suite level that really understands customers? You had him on one of the Market Movers not too long ago, Mark Ross Smith about, there should be somebody... I mean, when you look at it now, you've got the airlines, United, Delta, and American out there getting billion dollars in loans of the value of their loyalty program, and yet the person that manages the loyalty program is down somewhere in the ranks. But the value they...

For years I've been amazed at when you look at the annual reports of major airlines, the profitability out of the loyalty program is more than the profitability out of the airline. And it's been that way for a long time. And I think in a lot of other companies. There's a bit of a tussle going on right now. CMO turnover is really high. It's like every two years, you'll see CMOs turn. And we've got the CIO that's taking some of the role. We've got chief customer officers. Somewhere along the way the CMOs lost grasp of the ownership of the customer, and I think it's because it has become so data driven, and somehow a lot of executives have looked at that and said, "Well, it's a technology thing because it's data." And I'm like, "No, this is a marketing thing because it's a relationship." Data helps drive it. And somehow we've got to help CMOs get back that core set, and it really is understanding the art and science.

There's the art of what is a relationship and how do we build relationships, and there is the science, which is the data, but we've got to do better at bringing them together and creating great outcomes for the brand. There are emerging CMOs that are starting to grasp that, that are much better than that. But that's, I think, one of the things we got to work on, Jeff. And I think stress tests like this... This to me is like... In the financial crash in 2008, we talked about stress tests for banks. To me, this one is a stress test for the consumer relationship. It's not just about the purchasing power. Look at all the emotion that's tied up in the pandemic. Look how many causes have emerged in terms of Black Lives Matter or in terms of lots of the things that have come up. The emotional piece of this is starting to come out, and that's where brands have got to do more about defining their personality. That's what CMOs are good at. Then we've got to say, "How do we implant that COO or that personality into the emotion of our connections to consumers." And then using data to help understand how we're doing to drive

Jeff Herrera:

Yeah, no question about it. Couple of quick, call-outs for you in 2008, the last major, big global recession that took place, hit hard here in the US. One of the studies that we really latched onto was the joint CMO council in the Catalina, like 685 brands, some 32 million customer... These are major brands, Coke, Pepsi, Quaker Oats. A lot of those major brands out there. And it was learned at that time in 2008, the high loyals at that time, brands, were only able to retain 48% of their high loyals. 52% either switched or defected altogether. The major data point there. So that's why we continue to emphasize, and this particular global recession is a little bit more challenging than ever before, to put it mildly. So that's a good data point.

And then I also wanted to share with you some recent learnings that our clients are telling us. For example, McKinsey Childs, who's a real good client of ours, their CMO, Larry Shaw, speaking of CMO, said, "Look, we've had our challenges. We've had to recalibrate. But let me tell you about loyalty." This is a direct quote. He said, "Use it wherever. It's a real good illustration of what we've learned. We want others to share that learning." If we had to cut down to two to three services that we pay for, loyalty would be the one that we would keep. Lesson learned in 2020.

John Bartold:

And this comes back to that whole thing of crisis and the emotion around it. Really this is where loyalty, I think, really plays into this one. We're a little bit hampered. I don't know their particular situation, but again, if you're essential or non-essential, if you're non-essential, you're sitting there scratching your head going, "What do I do," because it's tough. If you're essential, you're trying to say, "how do I make sure I retain that..." Loyalty is much more important to them right now because they do want to retain what they've had. They're getting customers coming in that they didn't have before that they want to be able to retain going forward. So loyalty is that relationship piece, that cornerstone piece that helps you get there.

I think as we see this start to unfold and we get better control of the pandemic and more things open up and we get more economy flowing again, loyalty will be the big thing. I mean, historically when I've looked at it... I think that the Catalina study you brought up is really interesting, because every recession I've been through, two things that came out very clearly for me was where I had a client that a strong loyalty program, and that had a strong accrual mechanism in their program, there was points or promotional currency that's nice and stays or whatever that grew, that in essence became a spending fund. So people worry about the liability, but in a downturn it helped them bring loyal customers back faster because there was money in the bank. It primed the pump. It helped get things started.

On the other side of it, where there wasn't that, what you saw is a lot of price sensitivity, because the economy has constrained and people that are trying to make more of their dollars. So what I read a lot in the Catalina study was there was a lot of generic switching going on because it was a lower price point. I hate to say this, but in some respects the grocers have not done a great job overall with loyalty. There's some that are doing it, but it's still very much in the moment from a economic value prop. So when the economy takes a hit, they're pretty much still playing the price game. The other brands that had more of an accrual mechanism are playing the savings bank game, and they can help drive the business that way.

So I think there is some give and take there, and the loyalty piece becomes very important because it does help prime that pump. It also gives you a place where you've already identified consumers and hopefully you're better connected to them. You know their email address. You can do SMS. I know you guys talk about, do we have the social connections? Trying to find the best, most optimal way to engage customers, and in today's noisy environment, having that loyal relationship, a place we know to communicate with people, makes it so much easier.

Jeff Herrera:

Well said. Definitely. We're getting a little short on time, so let's... I said we'd come back to the Kroger, let's talk about that for a quick second. And then also, I'd be remiss if I didn't mention, you beautifully articulated the power of loyalty and the value of loyalty in the airline segment with Delta and American and United. Spot-on. But it's also Spirit Airlines, Spirit Airlines with their loyalty program, so don't think of it as just the big three. almost a billion and a half dollars to keep them operational, but with the value of their loyalty program. It's huge, right?

John Bartold:

And I think other brands... That's where I do think it's kind of a shame that in other categories... Not saying that a retailer is going to go out and borrow money against their loyalty program. This fear of liability has always befuddled me. You don't want to carry that liability in your books. And I've heard people, comments, it's even a bad thing. "Oh, these people have these liabilities in their books." Guys, it's a liability from an accounting... In fact, the latest rule changes of accounting made it a little bit better, but it's not really a liability. I've always said, "Guys, that's goodwill." Just in reverse. When things get bad, you've set aside something that lets the consumer engage with you again. That is your loan. That's your money, if you've done it well, and you've done it right, that gets you back in the game.

Jeff Herrera:

That's the value. That's the beautiful value. That's the equity that you've worked with, with respect to your brand that allows you to have that connection, that lifetime value that you established, that's the beauty of it, right?

John Bartold:

Yeah. And it primes the pump. It gets the start. It's good stuff. Kroger.

Jeff Herrera:

Kroger. Kroger came out today and said, "Great results." 127% increase or something like that for digital, which is fantastic. But their CEO came out and said, "We were also dedicating, not just to our most loyal customers." Now they've created this experience, as you walk in that Kroger door, you're going to be valued just like their most valuable customers, because they have placed a spotlight on customer retention, they've invested in that experience, and they want as a shopper at Kroger that you are going to feel, the day you walk in, instead of waiting, instead of waiting to see if they become a valuable customer, now they're saying you walk in that door, we turn the spotlight and you are a most valuable customer, regardless of how much you've spent or not. Comment on that, because I think that's very powerful. It sends a statement in today's retention economy, that this is how you win and they're winning. Would love for you to comment on that.

John Bartold:

It's great, and it is an example of, again, the essential versus non-essential. They've got people coming in, and right now they want to capture every one of those and retain every one of those customers that they can. They got a bump of 126%. The last thing you want to do is have the economy open up and that extra percentage that they picked up walks away at the same time. So yes, they want to do that. I still think, and I would have to bet that in the background there's a lot of analytical horsepower going on around how do we still do this? Because that was one of the things we've always worked on with loyalty programs is allocation of resources. Especially in hard times, economic times, you want to make sure that you're investing your money, your marketing dollars, in the best places you can. And I would imagine Kroger's doing a lot of work right now that says... The outward statement is we love everybody, and I'm sure they do. It goes back to the old days in retailers where they would say, "I can't discriminate. I can't do something different from one customer to another because we treat all customers wonderfully."

I would always be like, "I'm not telling you to treat anybody bad. I'm just saying a you treat some people a little bit better than others." And it gets down to the allocation resources. At some point some customers are going to more valuable than others, and how do we allocate those resources that we're getting the most of that value from those customers? And I think that was even part of that study you talked about with Catalina, talked about the super loyals were easier to retain than the others. But that's another aspect of that allocation of resources. How do you think about that? How do you balance it out? And that's where the data comes in. There's the emotional piece, there's the art of it, which is the relationship. There's the data piece of it to me, which is more the financial, the targeting, the allocation of resources. I bet Kroger's doing all of that in the background.

Jeff Herrera:

Yeah, no question about it. Well listen, John, we're up against the clock here. Again, thank you so much for spending this time with us. I think people will see a lot of great insights coming from this conversation that we'll see in the marketplace. We're starting to see some good movement and this only helps. And if people wanted to reach out to you, what's the best way to get ahold of you, on LinkedIn? What's the best way?

John Bartold:

LinkedIn is great. You go to LinkedIn, you'll find me there at John Bartold, and if you want... That would be the easiest way, otherwise you get the long strings of email addresses and everything else. So LinkedIn makes it simple.

Jeff Herrera:

LinkedIn's perfect. Well listen, thanks again for your time. Really appreciate it. Let's do this again in the near future.

John Bartold:

Love to. It'd be great. And I appreciate your time as well. Good luck to you guys. Stay safe and stay healthy.

Jeff Herrera:

You too. Thanks so much.

John Bartold:

All right. Thanks. Bye-bye.

Featured Speakers

Jeff Herrera

Jeff Herrera

CMO, Annex Cloud

John Bartold

John Bartold

Co-Founder, PIVOTL cx

Annexcloud Logo

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.

Pivotl logo

PIVOTL cx is an experience-as-a-service hybrid of tenured creative thinkers with backgrounds in brand, strategy and technology with many services such as consulting, KPI design/redesign, organizational design, brand strategy and/or reinvention. PIVOTL cx brings humanity back to business.

To learn more about PIVOTL cx, visit https://www.pivotlcx.com/