Hello, welcome to my class on managing customer loyalty. Let me kick this off with a question on how much better do you have to be than competition to make a customer loyal to you? And I bet if you were in the classroom now, many of you would say, oh, a lot better.
Some would say. a little bit better. But let me tell you a quick story here.
When I first came to Singapore, I opened a bank account. And how do I did this? I asked my colleagues, so which bank do you recommend?
So they recommended the bank. And honestly, this was the worst bank I had ever dealt with in my entire life. I've been in Singapore now for 29 years.
And guess which bank I am with? And you guessed it correctly, I am still with the very same bank. So what happened?
And for me, I'm terribly busy to change bank account. It's just way too much effort. Plus, hey, I don't know.
I mean, this is one bank in Singapore, maybe all banks in Singapore are equally bad. So I can't really understand the quality of the other banks. And I never switched.
By the way, I just want to say here today, banks in Singapore are fantastic. This is a long time ago. But you can see you don't really have to be better to make customers loyal to you.
Think about it. Who has to be better? If a competitor wants to switch your customer, the competitor has to be better.
As long as you're equally good. Or if you have very high switching costs, you can even be a little bit less good than your competitors and you still hold on to your customers. So what I always say is competitive advantage is a very solid first line of attack, but then customer loyalty is a very robust second line of defense.
So customer loyalty can tie you over. Customers, once they've chosen you, are a lot more. sticky. And you will see in this class here, it is not rocket science to make customers loyalty.
We know how to do this. So you have a huge advantage if you have a good customer base. Also, don't get me wrong.
I'm not saying it is okay to be worse than competition if you have high switching costs. There are what we call two types of loyalty. The first one is what we call behavioral loyalty and that means share of wallet. Do your customers give you a large share of their wallet, right? That's the money part.
And the other is share of heart, attitudinal loyalty. Do customers really love you? Do they give you referrals and word of mouth?
Do they help you in social media? Do they defend you if other people attack you? So there's the share of wallet and share of heart.
And ideally, of course, you have both. The share of wallet, as we discussed, is a behavioral issue, is a little bit more rational and easier to achieve. The share of heart is a lot harder and ideally we have both.
But I mean, sometimes you're in a tough period and so on. Maybe people don't like me so much, but if I still have the wallet, I like the money. Now, why is customer loyalty so important?
And here you can see This is a study done by Bain Consulting and by a gentleman called Frederick Reichelt. Fred Reichelt, he is now Emeritus Partner in Bain Consulting. And he came up with a lifetime value of customers I'm sure all of you are familiar with. And they developed stuff also like managing a business for zero defections. Fred Reichelt is also the creator of the very famous...
promoter scores. A lot of stuff came out from his work and his research. And they looked at 20 different industries and looked at what is the profitability of a customer depending on the age of the customer, meaning how long has the customer been with you and how profitable is that customer. And they did 20 industries, B2B, B2C, contractual like telco and life insurance, transactional such as car rental and and fast food. And what they found is exactly what you can see here on this chart is it followed the same pattern.
There's an initial loss, there's an initial period of low profitability, and then if you go after the right target customers, profitability goes up year after year. This curve is a little bit steeper for contractual services, it's a bit flatter for transactional services, it's a bit steeper for B2. see and it's a bit flatter for B2B simply because B2B goes into tenders and negotiations and other things they take some of these funds away from you again but the pattern holds across and you can ask where do the minus this is a credit card example here from when they did this research the minus 80 dollars so what is that and this is really everything to do with the acquisition and account opening of that customer. So that includes commission to distribution to sales. It includes welcome package, card, letter.
It includes gifts. It includes credit checks and all of those things. And then you may ask why is profitability relatively low in the first period? Many reasons for this. Number one, maybe they have preferential pricing when they came on board.
Right. And many credit cards do this. Many others do this. I have a promotion period.
Many times customers try you out first. Right. Rather than shifting all my balances to you, if you're my new broker, I try you.
So low balances, there are fixed costs per account. So the. profitability is relatively lower in the first period because of those. And one thing very often underestimated is do an analysis of your customer service centers and check who calls.
It is not uncommon that 50% or more of all the calls of all the emails and so on you get is from relatively new customers because they get stuck, they don't know how and they have questions. your more mature customers they have the apps and online and then every they know how to operate whatever tools you have right so servicing costs tend to be high so then over time what you see is this this uh uptick in profitability and that's a mixture of why lower servicing costs hopefully you increase share of wallet if you go after the right segments the segment growth so that that customer becomes more the wallet becomes bigger right so there are many reasons here and what you can see here is if you look at year eight a customer in year eight makes 99 contribution so if that customer stays with you and you look at year nine it goes up to 103 And I think many of you have heard this before, it's six times as expensive, more expensive to recruit a new customer than to retain an existing customer. But that's only half the story.
The other half of the story is if this customer in year eight leaves you, how do you generate $103 contribution with new customers? You go back to acquisition. It takes you for every new customer two years to have a net contribution of $26.
Minus 80 plus 40 plus 66. So basically, if customer in year eight leaves you, you need to acquire four new customers and serve them for two years to make the same amount of money. So you can see it has a huge profit impact if you are able to hang on to your customers longer. I mean, one of the, I was working with a courier service company here and they have global accounts and imagine what their average lifetime of a customer is. I mean, how long do you want to hang on to your customer? And for them, the average lifetime of these global accounts is 70 years.
So you don't want to be the account manager who loses a large MNC and drops out, right? The bank I was with in Germany, I was working there, we held customers for a lifetime. We acquired them at birth when they entered school, when they left school, when they left university. We had a whole sales force going to their homes with a whole pack of goodies and special rates and free overdraft and credit card and everything.
And the idea was that after a few years, when these freebies run out, you have so many. payments in, payments out, insurance and brokerage account and everything with us, that switching costs are almost prohibitive. So hopefully you stay with us for life. And now don't laugh, we even had a whole campaign, even after people passed away, we still held onto their money.
So if the heirs come in and want to withdraw the money, then we knew these customers for their whole life. And we say, look, you know, you're dead. save this money for his whole life. We know how hard he worked and he really wanted this money for you and your siblings and your children. And now you want to come in and withdraw half a million to buy a Ferrari.
What do you think your dad would say if you did this with this money, right? So why don't you buy the 888 Asia Growth Fund instead? And your dad would be very happy to promise you, right?
So you can see. This whole thing about lifetime value here is very important. And what we want is that this customer in year eight stays to year nine. And we know from all the research that really the key thing that keeps you is you're happy with the value proposition. You're happy with the service.
So what we really want is to hang on to our customers as long. as they are profitable. And the key driver of this profitability is really they're happy with the service and happy with the value proposition you offer.
So what you can see here is there is a correlation between customer satisfaction and retention or loyalty. And interestingly, you can see it's not linear. You see here, look at this.
You have the local water firm. I mean, you can be completely unhappy, but you have no choice. So if it's a rotten company, you can complain to your politicians and to the company, but you have no choice.
Then for other services, so you can switch, but it's a lot of work to switch. So they're also more sticky. And then you see the extreme at the bottom.
You see retailing and restaurants. And here we talk about customer delight. to make customers loyal to you making them happy is not good enough you have to delight them and and why is is very easy um very very logical customers like to seek varieties variety seeking they like to enjoy and try new concepts and dining and cuisine and retailing and all of this right the other is uh there's tons of competition right so not only do they like to try others there are many many other providers and switching costs are virtually zero.
So what you can see is that competition pushes down the correlation between satisfaction and retention and moves you more and more into delight. So what we want is really, we want to have happy customers who stay with me, but you can also see not every customer is so what we really want is to make key target customers loyal to us you can see here our latest research shows that you can retain 100 of your customers if you give each of them a new sports car and i guess this would work in most markets in this world and we can have a long discussion here is this how you create loyalty right and you Besides it being very expensive, instead of a sports car, you can say, I give you freebies, I give you loyalty points, I give you low price, right? But the thing is, it will never make customers love you for what you really do for them. So if you want to have customer loyalty, customers need to love you for your core value proposition. not for the bells and whistles and freebies and so on.
I mean, this is just a different level of price competition, if you will. So number one, loyalty means customers love you for what you offer. And number two, not every customer is marriage quality. Some customers just don't fit.
They don't love you for who you are. They're only after the freebie, after the promotion, after the low price. And the minute somebody else offers a better deal, they leave you again right so not every customer is of marriage quality so in every customer base You have what we call good relationship customers, and they're the customers who see value in your offer, spends more with you over time, costs less to maintain, and spread positive word of mouth.
And then on the other end, you have the poor relationship customers. So who are these customers who cost us in time and money and effort and do not provide the returns we want? What segment is difficult to do business with?
So this is tiering of your customer base, not of the market. And you can see if you have platinum customers, if you have lead customers. Have a guess, where do you have a higher share of wallet?
Platinum or lead? And I promise if you were in a classroom, 80-90% of you would say, of course platinum. And I would tell you, you're wrong.
I have hardly ever seen a business where you have a high share of wallet in the platinum segment. I mean, you're right, it's 80-20 rule. So these platinum are 80% of your revenue and profits.
But on their end, I mean, think about it. If you're a high net worth individual and you have 100 million US dollars, do you take all of your money and put it into one investment bank? I mean, just think of Lehman Brothers, right?
So what do you think? high invest high net worth individuals do right you put maybe 25 25 25 and whatever into three or four different banks to spread the risk likewise if you are a frequent traveler do you think one airline or one sort of loyalty program network here will cover all your needs in my experience no the people who travel a lot they are a member of all of the programs. I did a large project for a credit card company.
One top customer had 17 active cards for travel, for departmental shops, for petrol, and you name it. So the share of wallet is lowest typically in platinum and goes up all the way until you go to lead customers. So lead customer could be in a bank.
You have an old granny as your customer. and that granny has one single savings book and has a thousand dollars in that book and you have a hundred percent share of wallet congratulations right um so you can see there is there is the share of wallet is exactly opposite to how you look at it now why i'm showing this pyramid here because there are very important implications for both customer retention strategies and customer acquisition strategies. So for retention, so what do you do for the platinum segment? I mean, basically they're your most profitable ones. You cannot afford to lose them.
Competition is in those accounts. So of course there's red carpet treatment and so on and so forth. You do everything to make sure you are their preferred provider and hopefully you can increase your share of wallet a bit, but you will not be able to squeeze out the other vendors. Now for lead segments is the other you look at it wow you're not making money here very we call them lead segments because very often they cost us more to maintain than they generate in contribution. So what are the strategies here?
I mean there are a number of things you can do. Many people initially say oh exit them right so divest them and to me this is sort of the least attractive option. So first I try to really think what can I do with them. And the first question you have to ask is why are they a lead customer? Is it because their wallet is very small so they don't have more business?
Or is it because you are having only a very small part of their wallet? So these are two very different situations. Sometimes there are also strategic reasons. So let's say if banks go after students, they have a small wallet, but there's potential.
So you're okay to subsidize them for two or three years in the hope that you then make more money when their wallet actually grows, right? Now for a big wallet and small share, you can do some research. Why, dear customers, do you give me such a small share of the wallet?
Is there something I can do to migrate you up? to iron or even gold. So customer development is the key strategy here.
However, if the wallet is small and unlikely to grow, you still can make them profitable. There are a number of things you can do. You can cut servicing costs, such as no more paper invoices, no more free calls to the call center or to the branch. I mean, you're charging for interactions that are not self-service. You're charging for paper-based invoices.
So you try to add some prices on services that cost you money. to reduce the cost of servicing the segments. Other things you can do is increase price. Just be a bit careful when you deal with socially sensitive segments here. Then you may, if you have a social component to your service, then you may have to bite the bullet and cross-subsidize this.
But it doesn't mean you can't charge. For example, I mean, I know one telco company, they increased price. but if you could show that your pension was below a certain level or that you didn't have a job you could show some evidence and they were okay to waive the fee they otherwise would have levied yeah a b2b i mean i had one of my students he was working for an mnc and and um he was appointed to it to a new geography and that was lost making so he was brought there to turn this around and He did a customer analysis and he found that one large manufacturer, which was an aircraft in the aviation industry, it wasn't Boeing or Airbus, but it was one of the players in aviation, and they sucked up a ton of resources because complicated products, they needed tons of engineering support, which the company didn't charge properly.
On the other hand, they used a lot of SKU, so very complicated to serve, but within every SKU, low quantities. So the overall dollar volume was big, but per SQ was small. And so the first thing he did was really say, look, how can I cut servicing costs here?
And the first thing was he said, look, you know, let's just exit this account. So he taught them, look, we would like to exit. We can't cross-subsidize you.
Servicing you is just too expensive. And the aircraft manufacturer came back and said, no, no, we need you. Let's work this out.
And this was a long negotiation that ended up with number one charging for engineering hours. So some basics were free but the more advanced stuff they charged by the hour. The thing was in this manufacturer different engineers were in charge of different parts who preferred different sort of components so they could cut the SKUs by two-thirds by standardizing what they use.
right you can they did this and the third one they did increase the price by 30 percent and with these measures a let's say a customer became at least sort of a black zero right so you can do certain this is what you do in retention strategy you really look at what what do i do with these different tiers now acquisition strategy is very different so i was very fortunate a few years back we had gary lovman he was a former harvard professor and one of the gurus in CRM, really. I mean, in data and CRM. And he became the CEO, chairman, and president of Haras Entertainment. And so a lot of nice case studies and papers were written about his work there. But he told us the story that when he joined Haras first, there was a strategy that whenever a customer walked...
through the door. They would capture their details. Let's say if Michael doesn't live in Boston, but comes to Boston on a business trip, wants to do game.
So he has never been with us. He comes to us. So we have all of his details. And then what we see is what we do is when he then is back in Los Angeles, we sent him a welcome package says, uh, dear Michael, it was a. pleasure to serve you in Boston.
We have a great facility here in LA. Why don't you come and pay us a visit? And here is a valet parking and $200 free gaming and a welcome drink.
So how does that sound? They do this with every customer that walks through their door and who is not yet a customer, they invite them to their home site basically. Now it sounds great.
But this was one of the first things Gary Loveman discontinued. He said, who can you only acquire with a generic acquisition strategy? So if Michael is a platinum guest of my competitor. He can pick up the Red Hot service hotline here and ask, and they would just ask him, hey Michael, it's so great to hear from you. Where can we send the stretch limousine stocked with champagne?
Which VIP gaming room do you want? Do you want the suite overlooking the golf course or the sea, right? So how does your free parking and welcome drink sound in comparison? Who can you only convert with a generic acquisition strategy?
So most likely lead customers will be excited about it and some iron customers and that is it. So how Gary changed this was he said, look, when you come to me, we observe you. So you give us your credit card.
So we can see, is this a black Amex card without visible limit, or is this a true blue visa with a thousand dollars left? Do you consume ice water and pizza and beer or do you consume champagne and caviar? Do you play $5, $10, $5 or $500, $1,500? So based on these data points, I can now predict, I build an algorithm.
So which segment are you in? Which tier are you in? And if you're in the platinum tier, then what they do is they have The site manager call you.
Dear Michael, it was such a pleasure to have you in Boston. I'd love to personally show you around our facility in LA. Just give me a call. We send a stretch limousine with a champagne and a VIP room and which suite would you like to have? Right?
So you can see at least I have a shot now at converting platinum customers. Now, what we want is that customers are loyal to us, right? And for this, we have to understand a little bit on how to think about this.
And we have a quick exercise. Think of a service firm you are loyal to. And take a few seconds.
And what you will find is that most of us have a hard time to really identify a lot of firms we're truly loyal to, right? Companies spend billions of dollars in loyalty initiatives. And now here you're sitting, you can't really think of any or many companies you feel really fuzzy and warm about.
And if we did this in class, this exercise, after some thinking. then maybe you come up with, oh, actually, I'm loyal to my dentist. I'm loyal to my GP. I'm loyal to my car mechanic. Ladies may say I'm loyal to my hairstylist, right?
Sometimes they think of certain credit cards or, you know, but you can see here, it's not that we are loyal to so many service firms, and yet I want you to be loyal. Now, the second question here is, try and understand, as a given dentist, given GP, given your car workshop, given your hairstylist, why are you loyal to this firm? And I can promise you, if we did this exercise in class, people would say, oh, it's convenient.
It's just where my office is or where my home is. They know me. I don't have to talk very much.
Exactly what I want. If I walk into this restaurant, they already know which table I like and how fast and slow and so on and so forth. They have all my records. I don't have to explain anything.
They know my car better than I do. They know exactly what hairstyle I want. So you can see, and you will see, I mean, if you did this in class, I can promise you low price, loyalty points. Very often they are quite low in the hierarchy. unless they're sometimes they're real price leaders where people like, okay, I like the low price.
But often wrapped, I mean, you think about Amazon is still wrapped around great service. So what I'm telling you here is you really have to craft a value proposition for loyalty. So think about it.
Give customers a reason. Tell them why they should be loyal to you. And one way of thinking about this is the wheel of loyalty.
This is a framework here, which you can see, which sort of systematically looks at... How can I make customers loyal to me? And has these three steps, foundation, loyalty bonds, and churn. And you can sort of build strategies for each of them. The foundation is more or less the basic marketing strategy.
I mean, you can only make customers loyal to you if you serve them well. You can only serve customers well if the needs of the customer sort of matches your capabilities, right? So the whole segmenting of the market matching the customer here.
And then you want to have really loyal customers. I always say, if you look at churn, why do customers leave you? Sometimes you will find, hey, these customers shouldn't have been acquired in the first place. They just don't fit our business model. They don't fit our value proposition.
So if you want to have truly run a business for zero defections, you have to be very careful who you acquire. Don't be indiscriminate here. Acquire customers who fit the value proposition.
And then you can't treat everyone the same. So I'm from Germany where they are hateful that you have to tear and you have elite and you have priority. If you treat everyone the same as your lead and I in customers who get the best service from you in relative terms and your platinum customers are under serviced and competition will do a better job, you lose them. So you have to tear the service and you have to look at who's my platinum, my gold, my iron and my lead.
So you tear. And the last one is of course, hey, you know, your basic service has to be right. What I always say is that if you get this foundation right, you're 80% there to delivering customer loyalty.
That's the most important part is your core marketing strategy and delivering the quality customers expect from you. Yet we said customers in general are not very loyal. So even if my foundation is good, I can do more. And you can see here what we have is we call this loyalty bonds. And why?
We use them to tie the customer closer to us. And the lowest, simplest tool here is you deepen the relationship. You have here the cross-selling and bundling. And we know that.
I mean, I worked in banks before. Every branch manager has a KPI. What is the average number of products sold into an account? If this is 2.5 versus 2.9, the 2.9 will have a much more sticky customer base. So cross-selling, bundling are key.
Yeah, I did a lot of work in the telco industry here in Singapore and elsewhere, but Singapore was quite interesting. You had three providers, churn rates in the 20% range. And then one of the providers, the late last entrant, what they did, they came up with something with the bundling strategy they call the hubbing strategy. So they bundled telephone, internet, mobile, TV, and additional mobile lines all in one package, heavily discounted.
And the thing is then, yeah, you have, let's say four or five mobile lines on this package. They have different contractual terms. If one of them expires, you get a great deal, renewing it under the bundle.
But if you switch to a competitor with one line, even they give you a promotion, usually doesn't meet the bundle. So what happened, they were so successful with this bundling strategy that today every player has a bundling strategy in Singapore and churn rates are in the low single digits per annum. Why? You don't switch anymore between providers because it takes you for ever to switch a bundle. They all have different contract lengths and so on and so forth.
So it's just very, it's a lot of hassle, high switching costs and other reasons why you don't switch. The regulator got so upset in Singapore then they gave a fourth license for telco offer because the switching, if the switching is very low between the three incumbent players, it means price competition is reduced. Singapore is one of the very few markets in the world where I know that you still can charge for caller ID. That is unheard of in most other markets, but in Singapore it works, right? So you can see the, a core driver of reducing competitive intensity was really bundling and, and, and, and cross-selling is simple, but highly effective.
Now the next is really reward me for my loyalty. So there are financial rewards like points, freebies. There are non-financial rewards like you have this in tiering and service, let's say in airlines and hotels, that you move up from your silver to gold to platinum level.
There's the recognition and appreciation. So if you are a Hilton, honors, diamond card holder, and you have a very important presentation to deliver, and there's a problem, and you wave your diamond card, you expect they move heaven and earth for you to fix this because this card tells everyone you are an important customer. But let me put a different perspective on this as well. So I was doing a lot of work with airlines and one of the airlines I worked with, we had a workshop with all the station managers from around the world and talked about loyalty. And so we had this case where one station manager gave a top tier passenger who spends like two, three hundred thousand US dollars on business class in first class.
And he gave this customer for his birthday a two and a half thousand dollar golf bag. Some time ago now. Yeah.
And so we discussed in the class how much loyalty was created. And you can imagine the discussion. Initially, I said, wow, that sounds great.
But then you dig in a bit deeper and this is where the class discussion went. Okay, so he is a very rich person who loves golf. Does he have a golf bag?
Yes, of course he has a golf bag. Now, does he prefer his golf bag or your golf bag? And the conclusion was he has the golf bag. bag he feels is perfect for him so what's he gonna do with your golf bag and yeah discussions probably gives it away to a press as a present to someone so he gives it to his nephew as a birthday present so the value you created is really a birthday present for the nephew And you can ask, okay, how much would he have spent for the birthday present? So maybe not these two and a half thousand dollars you spent.
So maybe only $500. Actually you destroyed value with this transaction. And then very importantly, you should always ask, does this loyalty initiative you do here add value to the core service?
Does this golf bag make him enjoy his travel with you more? And you can see it's completely unrelated, right? So if you do research on, I mean, I worked on various loyalty programs here. You do a bit of research on why are you loyal to your airline? And stuff that comes up with, I'm a high-tier passenger in the loyalty program.
I get priority waitlisting. That means the next seat that becomes available goes to me. I get priority access to senior call center agents.
So the next agent that becomes available goes to me. I get access to first class or business class lounges and check-in even if I don't fly first class or business class. So you can see there are many other things wrapped. around what people love you, why people love to deal with you. And two questions here.
Number one, do all of those enhance the core service? Do they add value to travel? And yes, they do, right?
So that is great. So they make the core service stronger. And the second is also how much does it cost you?
And priority is one of those things that have tremendous value. They cost you nothing much except systems and training and processes. And customers love them, right?
So you will never be able to really run a successful loyalty program with free birthday presents. bottle of wine or birthday cake or any of those things, the icing on the cake, there cannot be the core strategy of your loyalty or initiative. you have to hunt for things that enhance the core.
But of course, priority also means you can't give everyone priority, right, by definition. So yeah, it means there's a limit to how many customers you can serve with this. Now the next level of bonds, the highest level of bonds, is social customization and structural bonds.
So social means basically you and your customers, you know each other, you like each other, and you like doing business with, right? Customization means you know me and you know what I like, and you offer that without much need for interaction. So in a hotel, you know, I like high floor, I like king-size bed, I like non-smoking, I like Wall Street Journal.
So you know all of that. You can deliver this to me. And structural bonds are the most powerful.
That means the way you do business is completely integrated into your customers'processes. This is why every firm likes to have you, their app on their phone, their icon on their desktop, so that processes are smooth. And I mean, when... For travel, I mean, I always use one car rental company.
And the reason is very simple. When I fly back to Germany, there are two airports I arrive. It's Frankfurt, it's Munich.
I always fly the same airline there. So the flight numbers are the same. And all I do is I double click a past trip. And all I need to do is enter the new arrival date and the new departure date, and I have a car. End of story.
So if I go to a competitor, what will happen? They will ask me, are you male or female? Do you have a driving license?
What's the number? What's the billing address? What's the credit card?
What car do you want? What insurance do you want? What's the pickup location?
It takes me half an hour to enter all of this stuff and to complete a booking here. So you can see structural bond is because you already have set up this structure. There is no friction.
It's almost frictionless. I can, in two clicks, I can almost on my app book a car if I want to, right? So this is the structural bonds here.
And so you can meditate a little bit over these things here. But let me just say, when you think about loyalty programs, people always see, oh, loyalty programs is the points, is the financial reward. But I always see loyalty programs much more.
as an enabler, meaning I can only do priority. Let's say early check-in, late check-out and all of these things. I can only do those if I understand your system-wide consumption of my services. Then I know you're platinum, you're gold or you're lead. And if I know you're platinum, I can channel all of this priority and goodies towards you.
So in a way, I can do that. A loyalty program allows me to system-wide track your interactions with me and then I can do the higher tier service levels and even the customization and all of these other things. They are dependent on me understanding you and capturing all of those data.
Historically what I've seen, name stone work, I mean, my name is in so many different permutations and other databases. Addresses don't work, same thing. Passport numbers don't work because passports change, right? So somehow I need a unique identifier that identifies me at every touchpoint. So when I log into the website, when I call the call center, when I check in into a hotel.
So you know, hey, this is Jochen and this is his profile and so on and so forth. So. The loyalty points are a little bit like a bribe that your customers sign up, give you their data, and then identify themselves with this card at reservation, at check-in, at touch points. So as long as the points are attractive enough to do that, it's good enough. You're not competing on points.
You're competing on all of these other bonds that help you. to tie customers closer to you. And especially hospitality has many cute stories on customization and how they do this. There's one very famous story of a five, six star hotel, was one of the top notch consulting companies, a consultant who traveled there all the time, stayed in the same hotel. And then this is in the hospitality industry, this is called as the lamp story.
Yeah, this is quite cute because So he checked in and then they asked, yes, sir, can we move you to another room? There's some problem with the plumbing in the bathroom. And he said, sure. So they moved him to another room.
Then they asked him, oh, and what about the lamp, sir? And he just said, hey, what lamp? So he had no idea what they were talking about. It just shows the level sometimes of customization and personalization and hospitality.
So it turned out he had a few check-ins ago. He said, oh, I really love the lamp here in this room. And this hotel has a different lamp in every room. And whenever he checked in now, they moved this particular lamp into his room, right?
So there are many of such stories on how to make customers special and customized and so on, especially in hospitality here. Now, the last one really is churn drivers. You want customers to be loyal to you. Then you have to understand why are customers leaving you. So what's exit?
And I've seen many companies have what we call exit interviews and save teams, right? You call, I want to cancel my card, I want to cancel my line. There's a special team that tries to retain you.
And if they can't retain you, they are sort of a short exit. So why do you leave? And my experience is most customers just want to get off. the phone and want to end this relationship, want to end this call. And they give you some nonsense answer, like I don't need it anymore or whatever to just end it.
So what is best practice here is what you do is you maybe talk to a hundred or 200 customers a few months after they left. You don't tell them that you come from the previous company, you're doing at least not at the beginning. And I mean, for example, we did this for a mobile operator. And we asked, so why did you leave? I mean, and now we ask you first is, who are you with today?
So who is your new vendor? And then the second question is, why did you leave? It was quite interesting in this particular case.
It had nothing to do with our client. So it was a Korean mobile operator in Korea, handphones. the latest handphone is a status symbol.
You can't have old handphones, right? You're not up to date. And so the average life of a handphone, the switching is very, very fast, right? So if you're a senior executive in Korea and your phone is a year old and you walk by a shop where they show you the new handphone and it comes with a great deal, you are very tempted to go into the shop.
And what happened in the shop is the shop switched the customer to a new vendor. There's a number of portability, so they do all the work for you. And you may ask, why in the world are they switching my customers? And it's very easy.
If you're a large player, your commissions don't tend to be the highest. But if you're a hungry newcomer, they're the most aggressive in commissions and margins for the channel. They want you to sell you.
And yeah, so the competitors offered fantastic deals at the dealer level. And dealers were motivated to sell. the competitors and customers switched.
They had no problem with us, but they switched, right? So we then did something. We built a proactive handset replacement strategy that meant for my platinum customer, these business travelers who did roaming and IDD and tons of other services who give me $200 a month. What we did is every 10 months, we send them a letter, dear customer.
Would you like to have a new phone? Here's the range of the latest phones. These phones are for free.
These phones, you can take your loyalty points or top up a little bit to get the cutting edge latest iPhone, latest Samsung, whatever. And then what if they want to upgrade, we made sure they never ever see a dealer from the inside again. We had a whole gang of people on motorbikes. delivering these phones to our customers homes to our customers offices churn dropped by 60 percent of the segment right a very profitable segment so do a do a churn diagnostic on why is it customers leave us? And then you can think, do I want to address those issues?
So if customers leave you because competition is cheaper and you don't want to want to reduce the overall price, you can think, okay, do I come up with a scaled down version and cross-sell to those customers or do I just let them go, right? So depending on the churn drivers, you do different things. So I hope now with this, you understand actually it is not rocket science to build customer loyalty, but it takes sort of certain insights on what to do and what not to do. And I hope the wheel of loyalty really helps you to sharpen your thinking on this. Now, again, take a few minutes on what are your key takeaways from this session and write down or do an individual reflection on.
what is your most important takeaway from this session, what is the biggest challenge you see for your company, and what do you see as the biggest opportunity for you.