Misaligning Loyalty: Brand Loyal Or Penny Pincher?

Loyalty programs are everywhere nowadays. Almost every company offers rewards and discounts to join Facebook pages and online communities. Airlines and book stores deliver perks to the people with the most miles on membership cards. Some social media experts even promise to promote their followers for the favor (reciprocal exchanges).

But did you ever consider that many loyalty programs aren't really about brand loyalty at all? In many cases, brands are actually undermining customer loyalty with perks and preferred discounts because the incentives they offer reinforce allegiances to discounts over product and service differentials. And in some cases, they disenfranchise brand loyalists all together.

How does it happen? As companies increase the amount of freebies and privileges, the customer becomes more loyal to the "perks" and less attached to the brand. At the same time, some companies undermine the value of customer satisfaction. Ergo, if the only thing keeping a customer returning to a store is a discount, then it's equally likely that they would visit someone else for a slightly better discount.

Worse, hastily planned programs can erode customers on both ends of the spectrum: customers who learn to expect more because of their status within the program (making it an entitlement instead of an incentive) and customers who expect less because they believe any specials are intertwined with sacrifice (quality, service, both).

In some cases, these discrepancies are exceedingly difficult to track. The warning signs occur in the frequency and quality of customer referrals. Either the customers stop referring people or they might refer the perks but not the product or service, per se. Some marketing managers will even hide the problem by suggesting increases in reward programs offered, creating a series of temporary lifts to hide the erosion of loyalty.

So how can you tell the if the loyalty program in place is seen as a positive part of the experience? It's not always easy to really know (short of temporarily withholding perks), but an executive might start by asking what kind of loyalty program they really have.

What is the basis of my loyalty program?

1. Bribery. The most common type of loyalty programs in play today are not loyalty programs at all. They are bribery programs, sometimes with a sense of urgency that demand immediate action. While the program creators will tell you that you have an increase in loyalty, the customers are equally loyal to the price point. (Even when I was working with car companies, customers became savvy enough to wait for seasonal events before visiting dealers. If a customer is willing to wait for a sale, they aren't necessarily loyal.)

2. Addiction. Airlines and hotel chains have been in the business of loyalty programs for some time. The irony is that many of them don't run loyalty programs as much as habits. There was an article in Psychology Todaythat recently pointed this out. The true objective of some of these programs is to make the customer pay more on a habitual basis in order to receive an "incentive" that they could have bought ten times over or chosen another company.

3. Reward. It might not seem so on the surface, but there is a huge chasm between rewards and bribes. And, as long as a company can maintain the distinction, a reward program can enhance customer loyalty. Rewards, especially those that aren't written as part of a purchase point, put the company in the position to exceed customer expectations. The feeling they create is more in line with a thank you and not necessarily a kick back.

Back in January, I read a post that lacked some substance but still managed to nail the concept. Guy Winch, Ph. D., wrote "Customer loyalty occurs because customers’ purchasing behaviors become driven by their feelings for the company, not vice versa." And then he went on to mention that trust (and I might add mutual respect) underpins customer loyalty.

The general concept is to forge deep personal connections with customers. That way, they will always choose your company regardless of any other factor in the purchasing decision. If they are unwilling to do that, then they aren't loyal whatsoever.

So how did everything get so out of whack, making loyalty programs so pervasive? There are dozens of reasons, but asking the wrong questions is the most prominent. Specifically, some companies (or perhaps marketing experts) asked the customers if they would be more likely to purchase the product at a lower price or perk. You don't need a survey to tell you the result.

Anytime consumers are given the option of getting something they already buy for less, the answer is yes. The only time they might hesitate is if you weigh the question with consequences. And even then, without the consequences occurring at the time they are asked, consumers will pick the lower price or perk. However, you can also expect a fair amount will complain about those consequences even if it was spelled out to them on the front end.

Diversifying Digital: Social Is Not Enough

Much like Web designers had to diversify after websites were widely adopted two decades ago, marketers are forecasting that digital marketing and social media will no longer be enough in the months ahead. At the same time, marketers expect traditional firms to demonstrate solid digital skill sets.

According to a new study conducted by RSW/US, which highlights survey responses from companies that include AT&T, Baxter, Volkswagen, Moen, and others, only 18 percent of these managers believe that their traditional full-service firms are digital savvy. Even more striking, this percentage is down not up from one year ago.

At the same time, 67 percent of marketers do not think digital firms can survive as digital "only" experts. Marketers believe that such firms will have to deliver more full-service offerings in order to remain relevant. The study findings suggest that marketers are not satisfied with working with large teams of specialists. They want to limit their outsourcing to one or two shops.

"Digital isn't enough and full service isn't full service without it," said one Fortune 500 executive we spoke with about the study. "Right now, marketers are being asked to work and meet with ten or twenty different specialty shops, ranging from public relations and social media to specialty marketers and advertising agencies. It's too expensive and time consuming."

The RSW/US study suggests that marketers are also tired of "the whole social media ownership 'fight' occurring over the past couple of years – with PR, social firms, and full-service firms, all vying for 'ownership' of the social space." Of all possible "owners," marketers see full-service firms as the best choice but only if they are willing to strategically manage the process rather than creating banners and buying online space.

"I’ve seen plenty of digital firms with great, hot creative — but they lack the accoutrements necessary to make it a complete experience," writes the study's author. "The more sophisticated marketers get in the digital space, the more they will demand smarter planning, better buys, more actionable analytics, and more strategic integration with other media in the mix."

There is a sense of urgency among marketers to see the change happen sooner than later. Only 55 percent say they would consider using their primary agency again if they were to put their account up for review. This compares to 68 percent in 2008. Worse, almost 20 percent said they would not rehire their current agency.

Top most common tips from marketers to agencies.

• Help clients understand how the finite budget fits into sales.
• Show clients better creative, and not just for the sake of creativity.
• Demonstrate that the agency understands the client and market.
• Be relevant by keeping pace with market trends instead of selling cookie cutter ideas.
• Stop sending junior people in to head important projects that require senior people.
• Present good quality ideas rather than a quantity of ideas for the client to pick from.
• Prove that the creative solutions will somehow fit with the company's strategy.
• Know the customers and have a better sense of what they might respond to.
• Try influencing the campaigns more and directing them less. Condescension is not welcome.
• Focus on the development of strategic campaigns instead of generic gimmicks and ideas.

Overwhelmingly, the most common concern that marketers have is that most agencies, they say, do not have a grasp of the company, company products, market segments, or customers. Interestingly enough, this understanding underscored almost every successful agency during the golden era of advertising.

Although not included in the study, the abandonment of strategic principles coincides with the emphasis on design, beginning in the 1980s and 1990s. In fact, design is the most common characterization marketers give their agencies after full service, which accounts for about half of all firms. And, even inside full-service firms, design is dominant.

Unfortunately, most designers are promoted for creative prowess and not necessarily for their strategic skill sets. Still, marketers seem to sense that full-service agencies are more capable at developing these skills than digital "only" firms.

The full study from RSW/US is available for download and the organization recently added commentary in regard to the future of digital firms. RSW/US is a professional business development organization with the heart of an agency. It is located in Ohio.

Banking On Outlooks: Business Startups

According to new study released by Silicon Valley Bank (SVB), U.S.-based private and venture capital-backed tech companies are more optimistic in their near-term outlooks. More than 83 percent said they will be hiring this year, which is up 10 percent from last year.

The study focuses on a survey of 375 executives (80 percent at the C-level) of U.S.-based, early-stage companies in four high technology sectors: software/Internet (206 companies), hardware (63 companies), life sciences (83 companies), and clean tech (23 companies). The survey was conducted by a third-party market research firm, Koski Research, in February.

Key Findings From The Startup Outlook 2011.

• Nearly one in four companies (23 percent) exceeded their 2010 revenue targets, up significantly from 2009 (15 percent).

• Two in three executives say that business conditions in 2010 were better than they were the previous year, and three in four expect they will get even better in the coming 12 months.

• The vast majority of surveyed companies (83 percent) plan to hire in the coming year, up from 73 percent a year ago.

• 65 percent of respondents say business expansion and new markets are a top priority for them in 2011.

• The life science sector is more cautious in its outlook, citing regulatory/political issues as its primary challenges. Across all sectors, regulatory/political issues ranked as the third biggest challenge faced by startups.

• The top two concerns are the uncertainty created by our regulatory environment and the overall negative impact this environment is having on risk taking.

While the outlook is positive, government is slowing the recovery.

In order, the biggest challenges faced by these companies included equity financing, scaling operations for growth, and regulatory/political environment. While equity financing topped the list, the cause is also tied to government.

According to survey respondents, venture capital fundraising and investment levels are hindered by a tone set by the administration. While government claims that innovation is the key to success, it has also maintained a tone that suggests an aversion to risk. Unfortunately, innovation and risk go hand in hand.

"Probably my biggest concern (after equity financing) vis-a-vis operating as a startup in the U.S. is the stifling regulatory/tax environment here," said one survey respondent. "The sheer number of regulations and tax issues that have to be dealt with are staggering and the corporate (and related) taxes are highly punitive relative to other developed countries."

According to several respondents, the environment created by the government is driving more companies to move operations overseas. Along with regulatory issues, respondents said that they tend to hire slowly, given the high cost of compensation packages and the high cost of living in the U.S., along with the scarcity of qualified tech employees.

That doesn't mean executives are not bullish on America. On the contrary, only 13 percent would recommend their peers look elsewhere to start a company. The primary reason for their sentiment, respondents said, is because of the country's entrepreneurial spirit. In order to move beyond current challenges, SVB says the U.S. needs to adopt a more entrepreneurial environment.

Innovation remains the key in helping turn the U.S. economy around.

Among the suggestions included in its policy perspective, SVB suggests that the government promote risk taking and reward successes that result from it, remain open to disruptive innovation (even if it turns older companies upside down), provide a stable, predictable legal and business environment (without the back and forth of sweeping policy changes), and avoid excessive regulation. In addition, the government needs to reform education to ensure the country remains competitive in providing a strong pipeline of talent or allowing more qualified immigrants to bring their skills to America.

Other suggestions included government-sponsored R&D, tax credits for R&D, maintaining a sound system for protecting intellectual property rights, promote the flow of adequate risk capital into startups, and remove subsidies, regulations, and other market-distorting forces that favor incumbents.

These changes are critical for tech companies to help increase the speed of economic recovery, the study suggests. Otherwise, the U.S. will continue to discourage venture money, driving more technology away to India and China. The full report can be found here. It includes insights specific to each sector.

Making Commitments: Earth Day Network

One of the most valuable lessons I've ever learned (and shared) is the power of one. I learned this lesson when one advertising great pulled out a palm-sized bed of nails and laid his hand upon it much like art that originated in India. Nothing happened.

"See," he said. "When you have too many points, nothing sticks." It was a very effective visual lesson, and his only point.

Advertising works just like this old street-festival spectacle. It's all about weight distribution. If you place equal emphasis on thousands of points, there is too much information for anyone to make an informed decision. Focus on one point; it sticks.

How To Make One Billion Acts Of Green Stick.

As important as Earth Day can be, it has lost some of its impact as it became more commercialized. Nowadays, some of the biggest supporters are organizations that may or may not even be all that kind to the environment. It's hard to say so let's focus on something that works.

One idea that I really appreciated this year comes from the Earth Day Network. It is asking people to make one pledge, written and posted, that will ultimately help our planet.

Over 100 million people had already participated last week. People are sharing pledges to take small and large actions this year — not just for one day, but for a lifetime. And what I like so much about this idea is that those people who pledge the smallest contributions — one thing — are much more likely to stick with it.

A few highlights: One person pledged to turn off the tap when they brush their teeth and another person pledged to purchase more local food. Another person pledged to plant a garden at school and yet another pledged to change their lightbulbs for more energy conservation. One person pledged to turn off the shower when they shampoo and another pledged to install dual toilet flows.

Sure, there are bigger pledges. But I like the small ones because they are one-time reachable goals that are much more likely to stick. And, even if it doesn't seem like a lot, one billon of those actions (even 100 million) add up to a significant impact.

The Earth Day Network also goes a long way in making suggestions, broken down into categories that include green schools and education, advocacy, energy, transportation, sustainable development, conservation and biodiversity, recycling and waste, and water. People can also join pledges that other people have already created.

It's the power of one point. It's the power of one personal action. And it's magnified by the number of people who participate.

Advertising Dud: Why Great Creative Fails

I have nothing against Eastpack. They started in the 1960s to make duffel bags and knapsacks for the armed forces. Twenty years later, the founder's son noticed that students were using military daypacks as book bags. So they started a new line for students.

They are a tough bag. They even come with a 30-year warranty (except those with item-specific warranties), which is how they came up with the tagline "Built To Resist." That's your background.

Imagine being a copywriter assigned to the account. You have a lot going for you. Military tie-in. Check. Retro cool. Check. Modern designs. Check. Unique selling point. Check. There is no question. If James Dean needed a backpack, this would be it.

So what do you do? Throw all that out the window and rip off an unrelated 1980s video game, changing out the bricks for students who hurl themselves off buildings. They don't even bother to land on the backpacks that are among the toughest in the industry. It's kind of sad.



Sure, there is some pixel art appeal lurking somewhere behind the scenes, but I seriously doubt people are contemplating the unseen connection. Instead, the newest ad campaign from Eastpack is a great example of how more and more advertisers think they need to draw attention to themselves instead of the products they peddle.

Will anyone even remember the brand? The copywriter might remember. But for the company, this is par for the course. They have produced dozens of advertisements where the creative is the hero and the product just an extra.

"Successful advertising sells the product without drawing attention to itself, it rivets the consumer's attention on the product." — David Ogilvy

Look, there is no doubt that the ads approved by Eastpack are an exercise in great creative. But great creative is more art than advertising. The difference is in what happens afterward. Art is designed to elicit an emotional response. Advertising is designed to make you want to purchase (or least know more about) a particular product.

A couple of years ago, Retin Art asked How do you feel about advertising? And in response, penned a post that captures how most people feel. We love it. And we hate it.

Too many advertising professionals are getting too smart for their own good. They want our attention but then never do anything with it once they get it. And that's why great creative doesn't really belong in advertising. It fails so badly that more people would rather read a product review. (Hat tip: copyranter.)

Rethinking Education: Immersion, Part 3 of 3

There are probably several hundred issues that could be pulled out of the recent protests in Wisconsin. But out of them all, the most important one remains largely neglected. The education system is broken. And we collectively broke it.

The reason I say we collectively broke it is that the entire issue is more complex than most people know. For all of the debate in Wisconsin — bankrupting government vs. workers' rights — few people dug deeper than the symptoms to identify the problem.

If they did, some people might have raised an eyebrow to learn that the largest teachers' union in that state also owns the health insurance company that public schools contract. They will learn about it soon enough. I see a bigger problem.

The education system is overwhelmingly complex and inefficient.

The debate ought to have never been about teachers and their salaries. The formula is too complex. It's not like other salaries.

Roughly speaking, average teacher salaries are $45-55k for 180 days of work* (as opposed to 240 days in the private sector) with disproportionate benefits of about $30k and tremendous job security (very difficult to let poor performers go) but this is also offset by paltry starting salaries (some as low as $25k), greater education requirements, shrinking autonomy, and personal investments that many teachers make for their classrooms.

What strikes me as more interesting is that teacher salaries and benefits only account for 30-35 percent of the entire education budget whereas the professional-private sector invests closer to 40-45 percent of its revenue in payroll and benefits. Health care is even higher, with 50 to 55 percent of its revenue in payroll and benefits. (Some sectors are lower too; quick service can be as low as 20 percent.)

In Nevada, I know that the Clark County School District reports that 65 percent of its funding goes to salaries and 21 percent to benefits (which seems to indicate that less than half of the salary allotments go to teachers), which leaves 12 percent for services and supplies. Yet, if only about 30-35 percent of the entire budget goes to teachers, then they only account for about 35 percent (or less) of the entire salary budget. The question to ask is who else receives salaries.

In many cases, administrators make two to three times the amount that teachers do. In other words, the bulk of the salary spending doesn't go to teachers, but rather the people who administer the teachers. The irony is that any time there are cuts to the budget, the people most likely to face cuts are the teachers themselves.

*As someone who teaches, I can attest to the fact that good teachers work unpaid on most weekends. And it is not uncommon to continue researching education materials during the summer for the following year.

The agenda needs to be less on adults and more on kids.

When I helped open a private school in Las Vegas, the philosophy was to place an emphasis on the child's education. While I do not know if it has held up since then, I do know that it was the answer to every question related to the school. From which textbooks to purchase (with teacher-driven input) to how many microscopes they needed in the science lab, it always came back to "everything thing we do is dictated by the educational needs of the children. Period."

Most decisions made by the public school system are not based on this. They are based on school board directives, including which books are useful. They are based on how much union dues can be collected. They are based on a disconnect between teachers and the public over what constitutes fair salaries (and fair benefits). They are based on seniority over performance in all but six states.

At the same time, test scores are ridiculously poor. The dropout rates are unacceptable. And the students, from most surveys, are bored and disengaged with their overall studies (only one country ranks higher in terms of bored students than the U.S.). I even raise an eyebrow when my son shares how his education is invested — rallies featuring McDonald's, rule refreshers as to why students aren't allowed to shake hands, career quizzes pointing to jobs that may be gone in ten years, etc.

A student-first ideology makes sense because it removes all the burdens from the education system. It also increases teacher support because teachers are the biggest student assets. Great teachers will have an impact regardless of any other tools (whether tech or textbooks).

However, in order to move forward, school districts will need to consider modular tools, including smart boards and tablets for students — even if that means a certain percentage of parents have to purchase them much like parents are asked to purchase school supplies or uniforms or any number of other items kids need for school (with sponsor opportunities for certain income brackets). Tablets would reduce some of the costs associated with other materials and make books more accessible to the students.

But I would hold off on too many tech investments. School districts have a tendency to put tech ahead of the students. If the overall education system isn't working, then it doesn't matter what tools you have at your disposal. And, the overall plan isn't working.

Three considerations for an overall plan.

From what I've been told, school districts tend to remove autonomy from teachers in the classroom. (In my personal experience, the best teachers complained about administrative directives whereas the worst teachers supported it. Weird, I know.) To be effective, school districts could be changed with mapping out expectations (what the kids need to learn by the end of the year) but the teachers need to develop plans that are designed to get the students there and then beyond the mark.

Teacher Autonomy. Teachers need autonomy — even from some textbooks — because many of the books are wrong. (Last summer, we invested in a tutor who promptly untaught our son inferior methods in math.) This places a greater burden on the teacher, but if more funding could be allocated for performance-based raises, they might be more willing to invest.

Transitional Teaching. Another shortfall in education is the lack of transitional planning. The administrative function of assigning kids to their teachers in the following year needs to take place before the conclusion of the school year. This would provide the new teacher or teachers the opportunity to assign material for students to prepare with over the summer.

Student Expectations. The expectation for every student ought to be college, with the higher marks set for college entrance as opposed to a high school criteria. Learning vocations instead of pursuing college entrance ought not be a consideration until the eleventh grade. The reason is simple enough. Many trades are not looking for secondary education; even the greatest percentage of manufacturing jobs in America are classified as highly skilled.

I've mentioned the need for immersive education in the first part of this series. I use the technique too. While I consider every class custom, some structural elements are the same — an introduction that ties in a current event, coverage of common errors from the last assignment, theory related to the subject, case studies related to the subject, execution tips related to the subject, and then an assignment and optional reading based on the subject. Students also rewrite whatever assignment is returned to them.

Applied to math, after covering common errors from the last assignment, I might include the history of an equation, examples of why an equation is used, basic instruction on how to use it, in-class practice and corrections, and then some inventive homework to ensure they can master it. They might also receive an additional assignment based on what they missed with the first. Having not taught math, math teachers are probably best equipped to decide if it would work for them.

I suspect they would need more time than the allotted 50 minutes. But then again, in Nevada, some students have seven 40-minute classes, effectively reducing the teaching time to 30 minutes or less, not counting roll. That needs to change. Education requires more than snack-sized offerings. Expecting students to benefit from seven classes in one day is just a symptom of a struggling system.