Jul 30, 2008

Musing On The Concept of Customer Loyalty

The Notion of Customer Loyalty certainly varies from one industry to the next. It becomes evident when customers make specific decisions about the products or services they choose. It’s rarely about what they say in survey’s or feedback sessions – it’s about what they do, what actions they actually take. I don’t consider myself a loyal customer of Coke – I know it’s not particularly healthy and I have lots of other options, but when I’m out to lunch or dinner, I often drink coke. I’m comfortable with the brand and what it represents – but I wouldn’t necessarily chose it over Pepsi. So, I guess, customers can be very satisfied and still not be loyal.

So in essence, loyalty is always action oriented, retaining customers is all about seeking behavioral drivers which can trigger specific actions – on a regular basis.

So, how does an organization build customer loyalty? It starts with the value proposition – what does the product offering or service do for the customer? How does the company outline its value proposition to potential customers, such that the average individual can clearly see the ROI in buying a specific product or using a service.

Once your initial Consumer Marketing Campaigns, promo offers and free giveaways – have turned potential customers into actual ones, how do you turn first timers or occasional customers – into loyal ones? It’s all about building relationships, communicating a consistent value proposition through different channels and finding ways to maintain that dialogue with your customers in different forums. It’s about making the customer feel that your product or service is useful – even integral to some aspect of their well being. One thing that most successful Global Brands have in common – is a strong Customer Base.

In many cases, customer loyalty is the result of well-managed customer retention programs; customers who are targeted by a retention program, generally tend to be more loyal to a brand, product or service. The process and forum through which one communicates with potential or existing customers is key to retaining them and building customer loyalty.

I recently had a conversation with a colleague who asked – how I would define and measure customer loyalty in the Online Business. Web Analytics tools can tell slice and dice user demographics & trends in many different ways. One can always find data on what types of products or services your users are interested in – so various online customer engagement metrics, could be a measure of loyalty. Certainly, Internet users response to specific Online Marketing Campaigns could provide some indication of how a specific brand is perceived. Especially if the campaigns have strong interactive elements and feedback channels which enable potential customers to maintain a dialogue with a company, about its value proposition.

I don’t believe it’s possible to measure and manager customer loyalty using two or 3 specific metrics – especially in the online realm. One needs to review a number of different indicators providing different perspectives on how visitors and customers think about their relationship with your brand. It's not just about how they behave, but also about what they think. The emphasis between the two will depend on the specific products, services or value proposition which the company presents.
Web analytics tools will track online behavioral trends, specific actions which can serve as indicators of customer loyalty. It's also important to take into account what visitors do when they get to the site. Someone who visits a site three times and spends five minutes there each time is considered more loyal than someone who visits once and spends half an hour on the site. A frequency metric is useful, but does not necessarily serve as a strong indicator of Customer engagement or Loyalty.

If a person visits a site often and spends time interacting with features, tools and proprietary content – that person is displaying strong engagement and certainly has the potential to be a loyal customer.

Clearly, there are several factors which may be considered, when measuring customer loyalty, what’s key though is that turning potential customers into loyal ones – is a function of a number of key initiatives, which every company must take note of.
ð Customer Awareness: Knowing the core set of consumers who would most value your products or services and creating awareness amongst the core set - about your products/services
ð Customer Acquisition: Companies need to quickly determine how to engage with and acquire potential customers. start the dialogue and acquire them
ð Customer Service: Continuing the dialogue with customers, delivering a consistent message, creating and maintaining brand awareness, providing value added services
ð Customer Retention: Initiating programs, campaigns and support services to help retain your core group of customers – and turn them into raving fans

Ultimately, Customer Loyalty is primarily driven by the value proposition to the user, as well as the means by which that value prop is communicated to the user. It's made manifest by the types of actions and behavioural tendencies which the customer displays.

Jul 22, 2008

Customer Loyalty

Times are hard - bankruptcy levels continue to rise and spend levels are down across the US in several key sectors. Consumers are grappling with +$100/barrel oil prices and the resulting impact on the gas prices, air fares, groceries and just about everything else. It's at times like this - when every dollar counts, that we learn the true meaning of Customer Loyalty. Why is it that some companies are able to maintain and even thrive during economic downturns, while others are going out of business? I believe Customer Loyalty plays a key role in this trend. Over the past month, I've researched a number of companies across very different industries with a view to understanding what type of dialogue they're having with their customers and to what degree, they're maintaining or improving Customer Loyalty. The term customer loyalty is used to describe the behavior of repeat customers, as well as those that offer good ratings, reviews, or testimonials. Some customers serve as advocates for specific companies, telling friends and family about products offerings and services. This word of mouth buzz is a very potent means of creating awareness about a company’s value proposition & driving customer loyalty. Google is one company that has benefited immensely from the loyal behavior of it's user base.

However, customer loyalty includes much more. It is a process, a program, or a group of programs geared toward keeping a client happy so he or she will provide more business. Customer loyalty can be achieved in some cases by offering a quality product with a firm guarantee. Organizations often use special offers, gifts and promotional campaigns coupons, low interest rates on financing, high value trade-ins, extended warranties, rebates, and other rewards and incentive programs to drive customer loyalty. The ultimate goal of customer loyalty programs is to create happy customers who will return to purchase again and persuade others to use that company's products or services.

The Dialogue
I believe it's important for companies to maintain an ongoing relationship with existing customers and start one with potential customers. Good customer relationships are driven by having a meaningful dialogue on an ongoing basis. One which highlights the strong value proposition which the company provides as well as the value added services which are available to users.

The theme, tone and key underlying message should be conveyed through every level of the customers experience. So Marketing Campaigns should push a consistent, integrated message - through various mediums. Sales, support services and strong customer relationship management are amongst the key drivers of customer loyalty because of the constant, high-level interaction with customers. If a client has a problem, the company must be very responsive and should strive to address it in a timely fashion.

This should be standard procedure for any reputable business, but those who wish to develop customer loyalty on a large-scale basis may also go above and beyond the standard. In an upcoming post, I'll review the Customer Loyalty Initiatives of a handful of well known companies........

Jul 19, 2008

My Take On MSFT's Earnings Report

Micrsoft reported it's earnings earlier this week - and for the most part, results were in line with estimates. Q4 revenue was up 18%, but losses hit $1.2B - primarily driven by investments in it's Online Services Group.
"Revenue growth was primarily driven by increased Windows Server / SQL Server revenue, increased licensing of the 2007 Microsoft Office system and Windows Vista, and increased Xbox 360 platform sales." Favrourable foreign exchange rates were responsible for an incremental $542 million in revenue. Here's a transcript from Microsoft's earnings call, key Metrics Below.

Since the earnings report was released - MSFT has dropped below $26 and will likely decline futher, next week. Clearly, investors & analysts remain concerned that the company is spending too much time and resources trying to grow it's Online Services Business. I reviewed the comments which the Microsoft CFO made - addressing concerns about the Online Spend in FY08 and guidance for FY09.

Transcript From The Earnings Call - & Insights/Inline
”I will start with an overview of our broad strategy and then provide details into the additional investments. With the online ad spending expected to reach $80 billion by 2012, this area represents one of the largest growth opportunities for the company. We segment the market for online advertising in four distinct categories -- Search, Advertising Platforms, Information Content, and Communication/Social networking. For search, we’re focused on driving query share improvements and business model innovation, specifically in the area of high value commercial search. Our recent release of Cashback is a good example of executing on our strategy, which combines innovation in the shopping experience with a shift in the distribution of advertiser economic towards the end users. Additionally, we also [seek to win] targeted distribution through OEMs, ISPs, ISVs, and retailers. The recently announced deal with HP in the U.S. is an example of [this].”

WC: Although the online advertising market has slowed in recent months - as evidenced by Google’s results, there’s still plenty of potential for online advertising to snatch a larger share of Billions spent on global advertising WW. Search Advertising remains one of the most cost effective online advertising mediums so the top search engines are positioned to continue to grow revenue. However, building, maintaining and constantly improving a Search Engine is a very expensive endeavor. In Microsoft’s case, it’s made even more so, because the company doesn’t yet have the scale to challenge Google on Syndication/Distribution deals. (Recap: Search is key to driving online advertising revenue – which is forecasted to continue to grow rapidly and take share from the traditional $100B Global advertising Market. There are no half measures with Search – if you’re in, expect to spend billions developing global data centers, hiring talented technologists and improving core features & functionality).

“Turning to the ad platform, our strategy can be summarized as consolidate [when in] display, and there we are focused on integrating our advertising assets into a single comprehensive system that can deliver our publishing partners’ industry leading yields and our advertisers optimal return on their ad spend.”

WC: The purchase of aQuantive helps make the Microsoft ad platform offering – even more robust. Once the various systems have been integrated with one another – the Online Services Group will be well positioned strong reporting functionality to its clients. This helps optimize campaigns, improve overall ROI and drive customer loyalty/ retention. (Recap: Strong ad Platforms are the backbone of any Global Online Advertising Business. Key Investments in reporting infrastructure, will help drive online advertising revenue World Wide and provide Microsoft with a distinct competitive advantage in the online advertising space)

“In the area of communication and social networking, which includes our mail, messenger, and social networking assets, such as Spaces, we’ll deliver the leading end-to-end experiences across the PC, phone, and web. And finally, in the category of information content, we plan to invigorate our MSN portal experience with improvements in user experience, social media consumption, and premium content.”

WC: As an avid MSN User, I’m happy to hear that the company plans to improve the overall user experience of the portal and closely integrate its communication tools (messenger/hotmail), with useful, relevant, proprietary content. I’m not sold on the whole concept of Social Networking – as a revenue generating medium, however I believe it’s a key piece of the puzzle. There are only 2 global general interest portals – Yahoo & MSN. Both have similar features – and though Yahoo has been the stronger portal in the US, it’s been losing volume & reach lately. If MSN can become the undisputable Top Portal, it will draw even more Display Advertising revenue – especially from Large Companies – looking to build brand awareness online or start an interactive dialogue with Internet Users. Google can’t offer this type of value proposition through its Search Engine – so it’s a distinct opportunity for Microsoft, one the company should certainly invest in.

“So about two-thirds of the incremental spend that we are planning is related to investments to drive usage of our search offering. We’re dialing up our search distribution initiatives with targeted OEM toolbar [alt] search deals, scaling search globally with investments in localized engineering and data centers, pursuing acquisitions and partnerships to build vertical content to support our commercial strategy, accelerating the rollout of our Cashback program, and increasing marketing in the business to grow awareness and drive traffic. Second, we are upping the investments in our ad platform and increasing the number of advertisers and high quality inventory on that platform. Specifically, these investments are in the area of accelerating the integration of our ad platform assets, expanding our sales and service capabilities, small acquisitions to enhance the platform technology, and investments in strategic partnerships to increase third-party inventory available to advertisers on our ad platform. “

WC: I don’t know how much money Microsoft may have to spend in order to reach competitive relevance parity with Google. I’m not sure how many Syndication and/or Distribution deals would be required to help drive query share growth – or how long it will take. I do know that the Online Advertising Business worth Billions of dollars & it’s still growing. There are only two Global Players – Microsoft is one of them and the other is Investing as much, perhaps even more – in its Online Services and Offerings.

Key Metrics:Revenue:
  • $15.84 vs. 15.65 billion consensus
  • EPS: $0.46 cents vs. $0.47 consensus
  • Operating Income: $5.684 vs. $5.8-$6.2 billion guidance
  • Q1 Revenue Guidance: $14.7 billion - $14.9 billion
  • Q1 EPS Guidance:$0.47 or $0.48 vs. $0.49 consensus
  • 2009 Revenue Guidance: $67.3 b - $68.1b vs. $67.29 billion consensus, $66.9-$68.0 billion prior guidance
  • 2009 EPS Guidance: $2.12 to $2.18 vs. $2.16 consensus
  • 2009 Operating Income Guidance: $26.3 billion to $26.9 billion vs. $26.7-$27.4
Est. Revenue Breakdown
-> Client: $4.37 billion vs. $4.19 billion est.
-> Server/Tools: $3.74 billion vs. $3.67 billion est.
-> Online Services: $838 million vs. $949 million est.
-> MBD: $5.26 billion vs. $5.37 billion est.
-> Entertainment/Devices: $1.58 billion vs. $1.55 billion est.

Jul 17, 2008

Google Should Report +$3.8B

As Google prepares to announce its 2nd quarter earnings – the expectation is that the company will deliver about $3.8B in Revenue. That said, a close examination of how it makes its Revenue figure will give a good indication of where the company is going.

One of the key’s to Google’s dominance is that it’s able to provide a clearly defined value proposition to its core customer groups –through the quality of its Search Engine and it’s adSense/adwords programs.

I’d be interested in find out how much revenue the company manages to drive through its adSense (contextual) model – vs. the regular bidded Search Model. It would be interesting to review the split between Revenue reported from US and ROW. Even more insightful to review the breakout in ROW revenue between UK, Germany, France and the rest of Europe.

Revenue growth has declined YoY from 52% to 45% in Q1, Google is still gaining more query share worldwide. If the Yahoo Deal pans out, one can expect that Google will increase revenue even further, as Yahoo’s European Customers will start to allocate more of their spend to Google.

Clearly, the Microsoft / Yahoo debacle has benefited Google while Yahoo has been the biggest Loser. A review of Google’s US/Intl Rev should give some indication of just how much of a problem both companies face, in making headway in Search.