THE DIRECT APPROACH: Carlson's Ralph Browning takes a look at why customer relationship marketing is failing

Carlson's Ralph Browning takes a look at why customer relationship marketing is failing, while loyalty schemes such as Tesco Clubcard are still gaining momentum.

Tom Siebel of Siebel Systems, the leading customer relationship management systems company, has announced that CRM is no more. Meanwhile, the Nectar programme appears to be performing well, and Tesco and its much-admired Clubcard go from strength to strength.

So what does this contradiction - the disillusionment with CRM versus the apparent success of loyalty programmes - mean for the broader issue of customer loyalty?

First, CRM and points programmes are just two facets of customer loyalty. CRM, as defined by companies such as Siebel, is the investment in developing one customer view. This has proved difficult to achieve and the benefits are more elusive than expected.

Nectar is perhaps a more impressive example of partnership or consortium marketing than a loyalty programme per se. To succeed, customers must buy more from participants - cross-selling within a virtual closed market.

As such, its success, so far, has little to do with customer loyalty. Tesco, on the other hand, is a strong brand that continues to get it right. Tesco provides good products and services and its rewards lead to incremental spend.

Studies suggest that loyalty is decreasing and that customers are becoming promiscuous and demanding. The Office of Fair Trading has launched a campaign to make consumers more aware and more assertive. Online sites give price comparisons, offering greater transparency.

Carlson's own research suggests that companies should be more transparent and that loyal customers are not blindly loyal. A bad experience can be seen as a total betrayal with a "snakes and ladders" swift decline to defection.

Yet despite some disillusionment with CRM, companies and organisations are increasingly able to target and segment their customer bases to achieve customer insight and provide added value. The tools to boost loyalty are more readily available, although whether they're used properly is another matter.

Finally, in the "new age of over production" and limited differentiation, mass marketing is becoming less cost effective, with an explosion of channels and media choice. This, coupled with developments in customer opt-outs and planned restrictions in telemarketing, DM and spam, as well as privacy issues, means acquiring new customers may become more challenging. Further studies suggest that "switching customers" are the most difficult to keep and the most likely to switch again.

Customers demand more and defection is easier. Yet companies should be getting better at keeping their customers, as well as finding new ones who actually stay long enough to justify costs of acquisition. So what does this all mean for the future of loyalty?

The brand is still king, and that's why Tesco continues to get it right.

But how customers interact with brands is changing. Multiple channels and more interactivity mean that the brand must work through all communications.

Not just above the line but through, below and beyond - throughout the organisation, including employees and channels.

CRM is seen to have failed as such because it has not applied the brand and its values throughout the CRM process. It has become a systems-based end in itself.

The whole paradigm needs to focus more on the customer. It starts with understanding customers as individuals and how they purchase and consume the brand. The brand proposition and values need to be tailored to the individual customer. Eurotunnel, for example, would argue that its brand promise is the fastest way across the channel. But for the holiday-maker, the brand promise is that your holiday starts sooner.

But a promise alone isn't enough: the company needs to deliver a positive brand experience at each customer contact with the company. Benefits need to be tailored to each customer, be they functional or service benefits.

For example, special sales desks for British Airways Gold card customers are relatively cheap to deliver but add great value to the relationship with the customer.

The next generation of loyalty activity is about more than focusing on high-value customers; it's about tailoring the brand and the brand experience to the individual customer. And in so doing, widening and deepening the brand's franchise and driving incremental sales at a lower cost.

Underpinning this activity is data and customer insight. And not just the conventional use of such data, such as churn reduction and identifying best customers. One of our airline clients posted data on, among other things, customer lifetime value, the specific 80/20 rule for the company and the hours top customers spent in the air, throughout its contact centre to drive customer insight throughout the organisation. Another client recently based its entire acquisition campaign on acquiring best customer types. Current best customers were identified by life stage, employment, attitude and locality. Multiple messaging, multiple media and differing style and tone were used to attract these groups.

Finally, Tesco's confidence that rewards will be reinvested in incremental spend really sums up the issue. Develop a strong proposition and a strong brand across everything you do, find a mechanic to engender loyalty, treat your customers well and you can be confident of their loyalty. Perhaps the importance of loyalty will truly be centre stage when the City is wooed by details of churn rates, lifetime value and multiple product holding as much as volumes of new customers.

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