Loyalty programs can drive revenue and result in actionable insights.  Done properly, a loyalty program can foster customer retention, increase share of wallet, and drive incremental visits and purchases.  It can also provide valuable intelligence into customer behavior to help target promotions.

The currency of the loyalty program can vary.  Financial loyalty programs often offer preferred services based on tiers tied to the amount of your assets or investments with them.  Credit cards typically offer points based on purchases but the Discover Card gives cash back for example.  Shaw’s grocery stores and CVS drug stores offer discounted pricing on selected items, similar to coupons.  Airlines offer miles that can be redeemed for future airplane tickets.  Some retailers offer reward certificates after reaching a certain number of points.  For example, customers receive a $10 reward certificate at A.C. Moore after earning 200 points.

The goal of any loyalty program is to drive a specific behavior, typically purchasing goods and services or investing money.  Thus the program is structured to encourage incremental spend and increased share of wallet.  The program might award double points for purchases of $100 or more, causing you to splurge on your next purchase.  Alternatively, you might receive better service from a financial services firm if they hold all your assets because of the threshold amounts needed to attain various tiers.  Multi-tiered programs that airlines and financial services firms have accomplish this by providing additional benefits with each additional tier attained.

Loyalty programs must provide value to both the customer and the business.  Thus, the loyalty program must provide something to the customer that she believes is valuable but that is not too costly for the business to provide.  Not all customers will redeem their rewards and some rewards cost nothing so assessing the profitability of the program requires more than a back of the envelope calculation.  The trade-off must be considered carefully.  Make the reward too easy to attain and you may put at risk the profitability of the program.  If you make the reward too difficult to attain, customers may sign up initially and then drop out.   I have seen customers splurge to achieve the first reward certificate but they do not sustain that level of engagement afterward.  The program did not sufficiently incentivize certificate redeemers.

Lastly, you must also be careful that you have considered possible unintended consequences.  For example, it may be loyalty members are only buying discounted or low margin items in order to earn a reward certificate.  Once they receive their reward certificate, they may spend just enough money to redeem the certificate and no more.  Alternatively, cashiers might be scanning in their own loyalty cards or a dummy card when customers do not have a card or do not have their card with them.  Your loyalty program might be rewarding unprofitable customers or non-loyalty customers.

While Mark Twain was talking about his own death, there is another reported death that I am thinking about.  Back in January 2009 I included a quote about banner ads being the next direct mail.  I mean no offense to direct mail but the implication was that the value of a banner ad was diminishing.  The belief was that banner ads were being replaced by social media, which is a disruptive technology much in the same way that e-mail marketing has replaced direct mail in many industries and situations.  Direct mail still is a valuable channel but it is being used more selectively than it once was.

Well reports of the death of the banner ad might be premature.  A recent study by eMarketer predicts that banner ad spending in 2010 will be up 8.2%.

With the recent Facebook fiasco, privacy is yet again coming to the forefront of users’ minds.  As Scott McNealy said, “You already have zero privacy - get over it”.  And yet, we hope that that is not true.

On my personal laptop I restrict third party cookies and am selective about the sites from which I accept first party cookies. I accept first party cookies when I perceive that there is a benefit to doing so.  Because I don’t see the benefit in third party cookies, I never accept them.

I am willing to trade privacy when I am receiving a valuable service in return. Thus, I accept cookies from Amazon because of the perceived value to me — the ease in ordering, the suggestions for additional purchases, and the ability to add to my wish list. However, I decline first party cookies from a running website that requires cookies. The website serves up running routes in my area but I don’t value this service. Yet, the website will not function unless cookies are enabled. It frustrates me whenever I forget this fact and try to measure the distance I ran. As a result, I typically go to this site once or twice a year by mistake. By restricting access, the website is trading off brand awareness in the hopes of better measurement and personalization of content. I personally don’t think the trade-off is worth it.

I believe that users should have the ability to turn off and on cookies as they wish. Further, there needs to be more education about cookies and about a user’s digital footprint in general, particularly with the advent of behavioral targeting. I have provided a link to a Wikipedia page but perhaps an example would be best. Companies can use data from your cookies to serve up targeted ads. Providing you with ads that are targeted to your needs and preferences sounds great. But what if those ads are wrong because you share a computer with someone else for example? For some this could be annoying but for others it may be offensive. There is also the question of who has access to that data and how long it will exist. Further, what if your digital footprint is combined with your off-line behavior?

Personally, I think that advertising companies, in particular, should be required to ask for permission to use your data for behavioral targeting purposes similar to opt-in requirements for e-mail marketing. Best practices calls for consumers to be considered opt-outs for e-mail communication unless they expressly opt-in. Requiring the same for behavioral targeting will encourage advertisers to educate users in the hopes of increasing opt-in rates. In the US, the Federal Trade Commission (FTC) is advocating self-regulation but I think they should push for express consent by users. Most users don’t read privacy notices and those that do find that they are usually full of legal jargon making them difficult to understand. There’s a report from the FTC called Protecting Consumers in the Next Tech-ade: A Report by the Staff of the Federal Trade Commission from March 2008 in case you want to read more about it

The question I am increasingly asked is how do you measure social media and what is its ROI?  Given the economy there has been an increased demand for accountability and measurement.  The question is how do you apply this to a channel that is about brand awareness? 

There is the question of source material.  In many cases this translates into what web sites do you follow?

1. Your company web site(s)
2. Social media web sites (e.g., Facebook, Twitter)
3. Individuals’ personal blogs

What metrics do you measure?  Below are just some ideas.

1. Number of tweets
2. Number and ratio of positive comments
3. Number Facebook fans and Twitter followers
4. Links to personal sites that fans and customers have added to their web sites and blogs
5. Level of engagement with your company web site

Lastly, how do you establish causality?  It is difficult to determine if events in the social space are affecting purchasing behavior in the bricks and mortar space.  As my Statistics Professor said so often, “correlation does not mean causation”.

I worked with a Greek statistician who would always try to correct my pronunciation of the Greek letter chi.  I would say “kai” and he would say something similar to “he”.  It was like he and key combined.  I can’t do it justice so I continued to say kai. 

Regardless of how you pronounce it, the chi square test can be very useful.  In fact, one of my business school classes was spent discussing the uses and assumptions of the chi square test.  I won’t try to summarize a semester’s worth of material into a blog post.  Rather, I wanted to point out that chi square tests are used for categorical data and the only “gotcha” is that you have to use the actual counts (rather than percentages).  It is sensitive to cell counts and requires that there be at least 5 observations per cell. 

The chi square test is a powerful statistical tool as it can tell you if there are significant differences between categories and it is the foundation for CHAID.  CHAID is an abbreviation for CHi-square Automated Interaction Detector.  It is one of the many segmentation techniques used in marketing and, if you plot out the tree that results from CHAID, it is a wonderfully visual way to see differences within your customers and/or prospects.  For CHAID you will need to define a dependent variable and undergo EDA (exploratory data analysis) similar to a modeling project.

A colleague and I had a very interesting discussion today over lunch.  I was arguing for the importance of industry in guiding the type of business questions you ask and hence the type of analyses you perform.  He believes that industry or vertical does not matter. 

My professional experience tells me otherwise.  Currently two of my clients have very different challenges.  One is a retailer trying to drive a repeat visit among its customer base.   Given the volume of customers they have and the average basket size, increasing the number of repeat visits can greatly impact revenue.  The other client is a software maker that sells to large manufacturers.  Identifying the right customer who would be interested in their product is key.  They have a much higher price point and much longer buying cycle than the retailer.  For them, understanding lead generation and lead conversion is vital in order to make their sales process more efficient.

However, there was on thing we could agree upon.  It all comes down to giving the right person the right message at the right time.

Earlier this week I heard on Marketplace that the banner ad started 15 years ago.  On October 27, 1994 the web site Hotwired.com posted banner ads for Volvo, MCI, Club Med and 1-800-Collect. The click rate was 78%!   Those were the days.

In 2007, BusinessWeek reported that the average click rate on a banner ad was 0.2% according to Eyeblaster , a New York-based online ad firm.  According to Advertising Age, the click rate for display ads has dropped 50% in less than two years.

One of my clients is focused heavily on e-mailing his customers.  However, it is only part of the equation.  Consumers are increasingly online 24 hours a day, 7 days a week.  Yes, they are still checking e-mails but they are also on Facebook, Twitter and blogs. 

It used to be that the question was direct mail or e-mail?  Now the question is not what channel to use but rather which channels to leverage.  The direct marketing strategy needs to consider traditional direct channels, such as e-mail and direct mail, as well as social networking sites.  The need for integration of branding and messaging has become even more important as consumers have a multitude of ways to learn about your company and its products and services. 

The other challenge with the plethora of channels that have evolved is that consumers are bombarded with information.  Some are abandoning their e-mail accounts because they are overwhelmed by their inboxes.  Others ignore their inboxes in favor of communication channels they control.  I don’t bother sending my sister e-mails anymore because they disappear into the black hole that is her inbox.  However, she will respond instantaneously to a text message and will e-mail me on occasion, when it is the best channel for her to communicate with me.   

As marketers, we need to go where our customers are and offer them relevant and honest information.

I was preparing for a meeting with a software company and found myself analyzing their industry using Porter’s five forces.  This is a framework for understanding the dynamics within an industry.  Also, the rigor of analyzing an industry makes you stop and first define the industry.  It sounds simple but can often be complex.  If there are multiple audiences or multiple products, you might want to do the analysis on each.  Next, it requires that you consider vendors, customers, and competitors.  In my first semester at business school, I must have done this exercise at least once a week. 

Years later I could not believe that I was still using this framework but I found it useful in preparing for my meetings.   One of the questions in the software business is who owns the customer?  If the software is sold via a value added reseller (VAR), then they may own the relationship.  Knowledge is power and the VARs may have all the power.  The VAR may know when the customer is likely to want an upgrade, add new seats or licenses, or purchase additional software for related business processes. 

If you are starting to work on a new industry or a new project, consider using the Porter five forces framework.  It can help you get to the heart of the strategic challenges within an industry.

I have been playing around with Google Analytics, trying to answer the question “What should my Mother make?”  For her birthday, I created an Etsy website so that she could sell her handcrafted jewelry online.  She had been selling bracelets, earrings, necklaces and lanyards at fairs and events. 

Well, she has been making bracelets like crazy.  She has 40 or so on her website and at least that many which have not yet made it online.  She has only a handful of necklaces currently available on the web and probably less than two dozen which could be posted to her website.  Should my Mother be making so many bracelets?  

I analyzed this from two different angles.  First, I analyzed what pages visitors were viewing on her site.  With Google Analytics you can set an entrance path and see what pages were viewed next.  I choose her home page to be the entrance path and found that:  

• 36% went to the second page of her shop
• 15% looked a her featured jewelry
• 13% clicked on the necklace section of her shop
• 8% visited the bracelet section of her shop

Google Analytics also tells you where visitors went next so I know if they continued browsing her inventory, looked at her profile page, or reviewed the feedback purchasers provided about her.  In addition to understanding how visitors are navigating the site, it also indicates what items are most popular.  For example, one jewelry item had many page views.

Visitors clicked on the necklace section more often than the bracelet section, which indicates that necklaces are more popular.  However, necklaces are the first section listed and it may be that the order is causing more page views.  Thus, I will switch the order and check back to see if the pattern continues. 

Next I analyzed her online sales.  Necklace sales outpace her bracelet sales.  In addition, the average cost of a necklace was more than twice the average cost of a bracelet.  I had thought that visitors would gravitate towards bracelets because they are less expensive; however, her online sales suggest that visitors are more likely to purchase necklaces even though they cost more.

From a business perspective, it makes sense for my Mother to make more necklaces; however, my analysis doesn’t take into account her offline sales or her artistic goals.  My Mother is an artist and not a factory.  However, I will suggest that we update her necklace inventory on the website.