Fuzzy value propositions = confusion marketing

By Michael Lowenstein

  Michael Lowenstein, CPCM, is managing director of Customer Retention Associates, a customer and staff loyalty program development, research, and consulting firm located in Collingswood, New Jersey (www.customerloyalty.org).

  With over thirty years’ management and consulting experience in customer and staff loyalty research, CRM, loyalty program development and refinement, customer win-back, service quality, customer-driven corporate culture, and strategic marketing and planning to draw on, he is an active speaker, workshop facilitator, and trainer, and he is a regular featured contributor to three customer loyalty newsletters.  His keynote, general session speaking, and workshop facilitation assignments have been in the United States and Canada, Europe, South America, and Africa.  He also provides expert customer loyalty commentary and articles for several professional CRM sites on the Internet.  

   Michael is the author of two widely-regarded books:  Customer Retention: Keeping Your Best Customers (1995), and The Customer Loyalty Pyramid (1997).  He is also co-author of Customer WinBack: How to Recapture Lost Customers – and Keep Them Loyal (2001).   Additionally, he is a contributing author to Redefining Consumer Affairs (Society of Consumer Affairs Professionals, 1995), The Answer Book for Customer Service Managers (Bureau of Business Practice/International Customer Service Association, 2000), and Customer.Community: Unleashing the Power of Your Customer Base (Jossey-Bass, 2002)

   He has been a customer loyalty instructor for Pennsylvania State University and the American Management Association; and he holds an M.B.A. degree in marketing from the University of Pittsburgh, and a B.S. degree in economics and marketing from Villanova University.  He is listed in several international, national, and professional Who’s Who directories.  His clients include First Union, Toyota, Prudential, Westvaco, Cigna, Charles Schwab, Borg-Warner, Sygma, Comcast, Baptist Health Care, Metropolitan Life, Microsoft, Alliance of Community Health Plans (ACHP), Daimler-Chrysler, and Georgia-Pacific.  

   Customer Retention Associates specializes in helping clients optimize customer loyalty and value through customer and staff loyalty research, loyalty program development and refinement, loyalty action training for front-line staff and management, and customer save and win-back protocol development.  The company is a founding member of the CRM International Consortium (CRMIC), an affiliation of independent CRM and customer loyalty practitioners from around the world, which is based in Europe.  The mission of CRMIC is to offer leading-edge customer loyalty and value solutions.

   I’ve noted that, in recent issues of Marketing Business, the subject of ‘confusion marketing’ has been covered.  In the United States, we have two blatant examples of this phenomenon:  Long distance phone services and bank credit cards.

   Long distance telephone companies are competing for that scarce commodity, the high-volume caller.  They make telephone calls to prospective customers ad nauseum (usually around dinnertime), and their offer usually has some oddball, complex plan of pricing that includes in-state and out-of-state, daytime and night time, weekdays and weekends, etc.  There are often loopholes and hitches in even the simplest of these plans, such as charges based on the nearest five seconds or when there is no answer to a call.  Einstein and John Maynard Keynes would be hard pressed to figure out where the real value propositions are.  The U.S. government has even stepped in to try and regulate what is told to consumers.

   The net result in this confusion, of course, is that there is very little loyalty, and a great deal of switching, in the long-distance industry.

   Worse, however, is the fuzzy value created by bank marketers, and their affiliates, in the mad scramble to lure consumers to their credit cards.  There’s a great deal of money to be made through the extension of credit to qualified card users, so it’s no surprise that there’s so much competition to obtain them, or steal them away from the cards they already have.   It has been estimated that the average American household receives at least three credit card offers a week.  That’s over 150 a year!  One online credit card search engine carries close to 350 different credit card offers.

   Most of the sales approaches are annoyingly similar.  That’s part of what makes the value proposition for these cards so indistinct for the customer.  There’s usually a low introductory APR (annual percentage rate) for new purchases or balance transfers from other credit cards.   Then they layer on services like high credit lines, 24/7 ‘relationship managers’ available by phone, e-mail, or online chat, e-mail account reminders, travel insurance, and on and on. 

   That’s just the beginning.  There are credit cards that provide a 1% or 2% yearly cash back rebate on purchases.  There are sports/theme credit cards (university alumni, National Geographic Magazine, Bass Pro, Six Flags Entertainment, National Hockey League, U.S. Ski Team, Universal Studios, World Championship Wrestling).  There are frequent flyer credit cards where a cardholder can earn miles on any airline, plus other assorted benefits.  Then, of course, credit cards the airlines themselves.  Alaska Airlines, America West, Delta, Continental, United, TWA, USAir, Northwest………and British Airways  have credit cards.  Most of these travel-related credit cards come with an annual fee; but they have a fistful of ‘benefits’ like anniversary bonuses, low-cost companion tickets, class upgrades, bonus miles at sign-up, bonus miles at first usage, and free subscriptions, adding to the confusion. 

   There are automobile company and buying service credit cards, such as GM’s, where cardholders can earn points on usage which apply to the purchase or lease of a new car or truck.  Gasoline companies like Phillips 66, Citgo, Texaco, Exxon, and BP, specialty retailers like Barnes & Noble, Eddie Bauer, Home Shopping Network, L.L.Bean, Kmart, and Toys ‘R’ Us, other specialty issuers like Reader’s Digest, Sony, and even Star Trek (!),  and many grocery/supermarket chains also have their own Visa and MasterCard programs.  Most of these offer points or percentage rebates on purchases from these companies plus lower percentage rebates from other merchants.

   The big question is:  With this blinding array of so-called benefits, which have customers identified as having value, that is enough benefit to attract them and keep them?  Where’s the customer data that support these programs?  By what process, divine or otherwise, have the card issuers decided which combination of benefits to offer?  One credit card issuer, Juniper, is not at all bashful to say they use their own staff, called Product Innovators, to help design benefits.  Their advertising says:  “We’re all customers, too. So we designed products we’d want to use ourselves.”  At least they’ve made an effort to gather and use valid customer information.

   As in any market space, there is a small percentage of companies that are both innovative and customer-centric, gathering customer data intelligently and applying it well.   In bank cards, MBNA has maintained one of the highest rates of cardholder retention, despite higher APR’s, by a focus on proactive benefits, such as quick and easy credit limit increases, and building relationships through their call center.  NextCard Visa has built a following by offering online capabilities – balance transfers, account management, and special features like one-click shopping, and instant cost comparisons for desired products.  These companies make an effort to understand their customers’ needs, on a highly segmented basis, and them build programs designed to create real value.

   Some other credit card issuers have now begun utilizing data mining and personalization techniques to give them an edge.  HSBC, having seen its base of 2.5 million card customers remain unchanged for the past three years, has eliminated their reward points program.  Instead, the company is introducing a variety of retail discounts, competitions, and special offers tailored to their spending patterns.  The key is, of course, whether current and potential customers will see value in the revamped program.  In other words, is this move intuitive on HSBC’s part, motivated by a desire to save marketing dollars, or is it based on customer insight and designed to increase value?

   Customer service expert T. Scott Gross has said:  “Satisfaction is easy.  Quality is a notch up the ladder.  Value is where it’s at.”  Only clear value propositions developed from the right data and executed well, in any industry, can take the confusion out of product and service marketing.