Page 162 - Marketing Management

CREATING LONG-TERM LOYALTY RELATIONSHIPS | CHAPTER 5 139

samples, advance information, and special treatment. Most bloggers
disclose when they are given free samples by companies.
For smaller brands with limited media budgets, online word of
mouth is critical. To generate prelaunch buzz for one of its new
hot cereals, organic food maker Amy’s Kitchen shipped out
samples before its release to several of the 50 or so vegan, gluten-
free, or vegetarian food bloggers the company tracks. When favor-
able reviews appeared on these blogs, the company was besieged
by e-mails asking where the cereal could be bought. 66
Negative reviews actually can be surprisingly helpful. A January
2007 Forrester study of 10,000 consumers of Amazon.com’s elec-
tronics and home and garden products found that 50 percent found
negative reviews helpful. Most consumers purchased the products
regardless of negative comments because they felt the comments re-
flected personal tastes and opinions that differed from their own.
Because consumers can better learn the advantages and disadvan-
tages of products through negative reviews, fewer product returns
may result, saving retailers and producers money. 67
Online retailers often add their own recommendations, “If you
like that black purse, you’ll love this red blouse.”One source estimated
that recommendation systems contribute 10 percent to 30 percent of
an online retailer’s sales. Specialized software tools help online retail-
ers facilitate customer “discovery” or unplanned purchases. When
Blockbuster adopted one such system, cancellation rates fell and sub- Amy’s Kitchen sent product sam-
scribers nearly doubled the number of movies on their order lists. 68 ples to carefully selected bloggers
At the same time, online companies need to make sure their attempts to create relationships to quickly spread the word about
with customers don’t backfire, as when customers are bombarded by computer-generated recom- its new products.
mendations that consistently miss the mark. Buy a lot of baby gifts on Amazon.com, and your
personalized recommendations suddenly don’t look so personal! E-tailers need to recognize the
limitations of online personalization at the same time that they try harder to find technology and
processes that really work.

Attracting and Retaining Customers
Companies seeking to expand their profits and sales must spend considerable time and resources
searching for new customers. To generate leads, they develop ads and place them in media that will
reach new prospects; send direct mail and e-mails to possible new prospects; send their salespeople
to participate in trade shows where they might find new leads; purchase names from list brokers;
and so on.
Different acquisition methods yield customers with varying CLVs. One study showed that cus-
tomers acquired through the offer of a 35 percent discount had about one-half the long-term value
69
of customers acquired without any discount. Campaigns that target loyal customers by reinforc-
ing the benefits they enjoy often also attract new customers. Two-thirds of the considerable growth
spurred by UK mobile communication leader O2’s loyalty strategy was attributed to recruitment of
new customers, the remainder from reduced defection. 70
REDUCING DEFECTION It is not enough to attract new customers; the company must also
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keep them and increase their business. Too many companies suffer from high customer churn or
defection. Adding customers here is like adding water to a leaking bucket.
Cellular carriers and cable TV operators are plagued by “spinners,” customers who switch carri-
ers at least three times a year looking for the best deal. Many lose 25 percent of their subscribers
each year, at an estimated cost of $2 billion to $4 billion. Some of the dissatisfaction defecting cus-
tomers cite comes from unmet needs and expectations, poor product/service quality and high
complexity, and billing errors. 72
To reduce the defection rate, the company must:
1. Define and measure its retention rate. For a magazine, subscription renewal rate is a good
measure of retention. For a college, it could be first- to second-year retention rate, or class
graduation rate.