Mastering the Multichannel Approach to Loyalty

1. Mastering the Multichannel Approach to Loyalty Thursday, November 12 8:00AM Pacific, 11:00AM Eastern

2. Mastering the Multichannel Approach to Loyalty Ginger Conlon Editor-in-Chief

3. Mastering the Multichannel Approach to Loyalty Kevin Colosimo Senior Director Don Peppers Founding Partner ©2009 Peppers & Rogers Group. All rights reserved. 1to1® is a registered trademark of Peppers & Rogers Group.

4. Event logistics Please turn off your pop-up blocker You will not be able to participate in today’s post event survey Downloading a PDF of today’s slides Click on the “download presentation” button If that doesn’t work, let us know by using the “submit question” button Have a question for the presenters? Click the “submit question” button in the lower left-hand portion of your screen Post-event survey preparation Please turn off your pop-up blocker Helpful tools Use the “enlarge slide” button to view a complex slide Use the help link for a list of FAQs just to the right of the “enlarge slide” link

5. Today’s agenda Topics of Discussion • How to harness customer insight • How to retain your best customers • How to optimize your multichannel and cross-channel strategies Questions and Answers Post-Event Survey

6. Mastering the Multichannel Approach to Loyalty Kevin Colosimo Senior Director Don Peppers Founding Partner ©2009 Peppers & Rogers Group. All rights reserved. 1to1® is a registered trademark of Peppers & Rogers Group.

7. Complex and challenging environment Increasing competition Shifting behavior Growing complexity Tougher to reach customer

8. Customer retentionmore important than ever • Budgets and resources are constrained • Tough to acquire new customers • Loyal customers are more profitable • High impact of losing a “most valuable customer” • 6% Harrod’s customers generate 55% sales • 20% of Best Buy customers = 100% of profits • Top 100K customers at Nieman Marcus spend $12K/ year vs. $600 • 30% travelers contribute more than 80% profit for major international carriers

9. Two ways to define “loyalty” • Attitudinal loyalty – a happy, satisfied customer who likes to deal with you • Behavioral loyalty – a repeat customer • Attitudinal loyalty without behavioral loyalty has no financial benefit • Behavioral loyalty without attitudinal loyalty is unsustainable

10. But what is a “loyal” customer? • Pre-disposed to stay with you... • Resistant to competitive offers • But resistance is a matter of degree • What is the price premium you can charge? • Customer loyalty and unit margins are flip sides of the same issue • And how do you measure loyalty? • At what point are you successful?

11. Measuring customer loyalty Company A recruits 1000 new customers in Year 1

12. From Year 1 to Year 2... 30% of these customers leave before Year 2, for a 70% retention rate

13. Retention goes up with tenure In Year 3 retention rate increases to 80%, then in Years 4 and 5 to 90%

14. But customer acquisition continues In Year 2, the firm recruits another 1000 new customers

15. Each year brings a new “cohort” In successive years the firm continues to recruit new customers

16. So be careful with your metrics Easiest way to improve retention: Stop acquiring new customers! Average retention rate 70% 74% 78% 80%

17. Customer Needs Satisfied Traditional Competition Customer-Centric Competition Customers Reached A different dimension of competition Taking customer-specific action requires customer relationships Share of customer Market share

18. What a “relationship” involves… • Interaction occurs, both ways between two parties • Interactions drive a change in behavior • Relationships are iterativeby nature • Acontextdevelops over time, so relationship gets easier and easier • There is an ongoingbenefit to both parties • Each party has an incentive to recover from mistakes • Every relationship is different • Successful relationships generate trust • I can share my personal, private, or sensitive information • I trust you to act in my own interest • You’ll help me even in areas outside of your main business

19. The more effort the customer invests, the greater • their stake in making the relationship work. • Now the customer finds it more convenient to remain loyal, rather than re-teach a competitor The “learning relationship” Customer tells you what he wants You tailor your product, service, or elements associated with it FEEDBACK Save me time

20. Take the customer’s perspective What drives customer loyalty in your business? • Treat me like you know me and my business is important • Make available the products I want, when I need at the right price in every channel • Save me time and money • Reward my loyalty • Be helpful to me • Make me feel special • Be relevant to my needs • Respect my preferences and information • Support me anytime, anywhere where I “live”

21. Key principles for success • Understand Your Customers • Who they are, how their behavior is changing, what tactics best drive results. Segment and tier by value and needs • Recognize, Reward and Differentiate • Consistently deliver differentiated and satisfying customer experience at every point of interaction and offer personalized incentives and rewards to drive behavior • Engage Across Channels with Relevant Interactions • Engage with customers via traditional and new channels and build trust with personalized and relevant interactions • Build Powerful Communities of Loyal Customers • Build brand affinity and value by connecting customers with other customers

22. Improving the customer experience drives loyalty and boosts revenue Annual Revenue impact from 10-percentage point swing in Customer Experience Index $311 M Hotels $306 M Banks $305 M Wireless Carriers $298 M Insurance Industries $294 M Airlines $287 M Investment Firms $260 M Retailers $177 M Health Plan $200.0 $300.0 $0.0 $100.0 US$ Millions Source: Forrester Research, “Customer Experience Boosts Revenue”, Bruce Temkin, June 22, 2009

23. Improving the customer experienceBoosts revenue – retail example Revenue impact from 10-percentage point swing in Customer Experience Index for the Retail Industry $260 M $87.4 M $110.2 M $250 $200 $62.5 M $150 USD Billions $100 $50 Churn Reduction Additional Purchases Total Word of Mouth $0.0 Source: Forrester Research, “Customer Experience Boosts Revenue”, Bruce Temkin, June 22, 2009 *The increase in revenue include that from Additional purchases, Churn reduction and Word-of-mouth advocacy

24. What differentiates best-in-class retailers? 20% 19% 16% 15% 10% 5% 6% 5% 5% 5% 4% 4% 2% 1% 0.0 Increase Average Basket Size Increase in Retention Decrease in Attrition Average Best-in-Class Laggards Source: Cutting Edge Loyalty, Aberdeen, March 2009 • Offer a loyalty program (2 to 4x more companies vs. average and laggards) • Develop multi-tier rewards for their most profitable customers (70% more) • Deliver personalized promotions (52% vs. 30% for laggards) • Capture required CRM data at PoS (1.5x more than other companies)

25. Customer knowledge: the “ante” forimproving loyalty and the customer experience

26. Foundation: Universal customer master and BI Nurture one of your most valuable assets • Incent customers to share information • Consolidate, cleanse, protect and share complete accurate customer master • Provide pervasive access by business users • Apply advance analytics to uncover critical insights • Detect and respond to customer events • Leverage insights to better meet customer needs BI/DW

27. Managing customer relationships Differentiate Interact Customize Identify …customers as unique addressable individuals …by value, behavior and needs …more cost -efficiently and effectively …some aspect of the company’s behavior, offerings, or communications

28. Managing customer relationships Differentiate Interact Customize Identify …customers as unique addressable individuals …by value, behavior and needs …more cost -efficiently and effectively …some aspect of the company’s behavior, offerings, or communications Customer Insight

29. Managing customer relationships Differentiate Interact Customize Identify …customers as unique addressable individuals …by value, behavior and needs …more cost -efficiently and effectively …some aspect of the company’s behavior, offerings, or communications Customer Experience Customer Insight

30. Managing the customer experience Integrate all customer-facing operations Optimize by customer, not by product or channel Align enterprise-wide metrics and incentives Ensure cultural “buy in” by all employees Interact Customize …more cost -efficiently and effectively …some aspect of the company’s behavior, offerings, or communications Customer Experience

31. Customer Needs  behaviors  values Behaviors drive which generate Needs Values Needs Dimension BehaviorDimension Value Dimension Motives that move a customer to take action Actions taken by a customer Value created by a customer’s actions

32. “Best practice” definitions of customer value Actual Value “The net present value of the future financial contributions attributable to a customer, behaving as we expect him to behave -- knowing what we know now, and with no different actions on our part.” Potential Value “The net present value of the future financial contributions that could be attributed to a customer, if through conscious action we succeed in changing the customer’s behavior.”

33. Differentiating by value Unrealized Potential Value Actual Value

34. Differentiating by needs Differentiating by value sets your financial objective for a customer To achieve this objective you have to change that customer’s behavior Motivating a behavior change requires insight into the customer’s needs And different customers have different needs

35. Clustering customers by needs Various analytic techniques can categorize financial services customers by needs they have in common Best groupings will be those with minimum overlap

36. Recognizing your best customersAnytime, Anywhere Across Channels • Foundation is accurate customer master • Customer segmentation and tiering models • Every channel needs to be “customer aware” • Employee facing • Self-service channels • Real-time integration at every touchpoint • Open, standards-based platform Mobile POS Online Phone CRM

37. The economics of loyalty Impact of improving acquisition cost, margins, and retention on customer value Base Case: 70% customer retention Gupta, Lehmann & Stuart “Valuing Customers” Marketing Science Institute No. 01-119

38. Key principles for success • Understand Your Customers • Who they are, how their behavior is changing, what tactics best drive results. Segment and tier by value and needs. • Recognize, Reward and Differentiate • Consistently deliver differentiated and satisfying customer experience at every point of interaction and offer personalized incentives and rewards to drive behavior • Engage Across Channels with Relevant Interactions • Engage with customers via traditional and new channels and build trust with personalized and relevant interactions • Build Powerful Communities of Loyal Customers • Build brand affinity and value by connecting customers with other customers

39. Multi-channel to cross-channel Web PoS Call Center Social Media Mobile In-Store • Yesterday • Traditional Channels • Multi-Channel • Today • New Generation Channels and Cross-Channel CRM

40. Recognition, rewards and differentiated experienceOffer unique and personalized incentives and rewards to build trust and drive desired behavior Customer Value • Concierge service • Exclusive, experiential rewards VIP Customer • Notify “almost there” • Surprise & Delight Reward Near VIP Status • Rapid service recovery to prevent churn • Automated Welcome Kit • Personalized Incentive to Buy Again First Time Buyer ? Act on “moments of truth” to retain and develop relationships • Incentive To Enroll In Membership Program and Share Information Anonymous Buyer Time

41. Engage with relevant interactions Anytime, anywhere as a continuous dialogue • Relevant, right-time communications • Targeted and personalized offers • Recognition and rewards • Permission-based • Cross-channel and interactive Mobile POS Online Phone CRM ….Build trust with relevant multi-channel interactions

42. Empowering employees to deliver great experiences • Intelligent Customer Care • Intelligent Point of Sale • Enables employees to recognize and better serve your best customers • Consistently delivers personalized and “best action” recommendations in real time in the context of each interaction based on predictive analytics • Takes into account multiple, competing business priorities e.g. maximize revenue while minimizing Average Handling Time) • Learns and self-adjusts based on feedback to continuously improve results • Rewards customers at point of interaction for desired behavior and loyalty

43. Enabling great experiences on the Web or on the road • Personalized Web experience Personalized mobile experience RTD automatically identifies predictive drivers • Instantly recognizes customer and their value • Delivers targeted and personalized offers ‘on-the-spot’ • Enables tracking, earning and spending of points and receiving relevant information in real-time • Display optimized content, landing pages, ads, & templates • Self-optimization engine for content targeting – automatically learn what works • Dramatically reduces A/B testing time • Real-time capture of responses and leads

44. What customers are achieving…Retail

45. What customers are achieving…Financial Services

46. What customers are achieving…Communications

47. What customers are achieving…Travel and Hospitality

48. What customers are achieving… Oracle solutions • Understand Your Customers • Oracle Universal Customer Master, Business Intelligence, CRM Analytic Applications • Recognize, Reward and Differentiate • Siebel CRM – Loyalty and Contact Center • Engage Across Channels with Relevant Interactions • Siebel CRM - Enterprise Marketing Suite and Oracle Real Time Decisions • Build Powerful Communities of Loyal Customers • Siebel Social CRM Applications

49. Earn your customers’ interest • Two elements to customer trust: • Intent • Competence How Amazon does it

50. “Treat the customer the way you would want to be treated if you were the customer.” Customer trust • Forrester survey rated USAA highest in “customer advocacy” “the perception by customers that a firm is doing what’s best for them and not just for the firm’s bottom line” • According to Forrester, customer advocacy is… • “…the best indicator of whether financial services companies are able to achieve cross-sell success to a customer base” “Firms that score highest, such as USAA, are considered the most for future purchases of products and services.”