JRosenfield Article

WHATEVER HAPPENED TO RELATIONSHIP MARKETING? 9 BIG MISTAKES

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MISTAKE # 5: TIER INFLATION

In order to reach its potential, relationship marketing has to be predicated on a good marketing database.

The database allows companies to identify the small percentage of customers who account for the majority of profits (the famous Pareto Principle), and then to launch relationship building programs at these customers.

But like all technologies, the database is filled with temptations. One temptation: segmentation without intelligence.

Case in point: American Airlines is certainly a pioneer in database-driven relationship marketing, via its famous AAdvantage

Program. In the early 1990s, the airline spotted a segment of its Gold AAdvantage customers who were super-frequent flyers. Voila! These customers became Platinum AAdvantage customers, with all the rights and privileges appertaining thereto.

The problem was that there were no rights and privileges! The only important tangible benefit, in fact, was the ability to get first-class upgrades 72 hours in advance of the flight, rather than the mere 24 hours allowed to Gold customers. But even this benefit was subverted, because at the same time that the marketers launched the Platinum program American's accountants evidently tightened up the availability of first-class upgrades. In other words, things got worse, rather than better, when customers got their Platinum cards. Their expectations had been raised, and then disappointed. Result: less brand loyalty, rather than more, among American's most profitable customers.

American has long since fixed this problem, but now has a new problem: Me!

I'm now Executive Platinum, one step up from mere Platinum, and I'm nearing 4 million miles. I want a segment all to myself.

Will this be cost-effective? Probably not. The big question: At what point does tier inflation stop paying off. Stay tuned for this one.

Suggestion: Be careful about tier inflation, and avoid the fatal mistake of good marketing followed by poor product.

MISTAKE #6: ACCIDENTAL DISENFRANCHISEMENT

This can be another unfortunate consequence of "infinite tiering upwards." What happens to the Gold people when you add a Platinum tier? Loyalty/frequency programs revolve not only around rewards, but also special courtesies, prestige, and status: not having to stand in line, a private toll-free number, etc. A Gold person who has been perfectly content to wait in line might resent the fact that a Platinum customer has no queue.

Every aspect of relationship marketing has to be looked at in terms of strategic downsides, as well as upsides. Failure to do this has been endemic in relationship marketing programs to date. Remember the Chinese military theorist who pointed out that strategy necessitates sacrifice? Think through what you're potentially sacrificing before committing yourself to the possible dangers of accidental disenfranchisement.

Suggestion: When the database tells you what you could do, make sure your marketing intelligence tells you what you should do.

MISTAKE #7: CHANGING THE RULES

Relationship marketing programs based on frequency rewards have run into problems due to their very popularity. Airlines, for example, were carrying billions of dollars of free trip liability on their books. In an effort to please the accountants and eliminate the liabilities, the airlines changed the rules in the mid-1990s, typically by introducing expiration dates and upping the ante for trips and upgrades.

The result? Customer mistrust, customer disillusionment, and an erosion in the relationships the airlines have tried so hard to build. No one likes unexpected, unilateral rule changes. It's vital to build in rational expiration dates at the inception of a program, so that disappointment doesn't ensue later.

Suggestion: Get the rules right at the beginning. Remember what Thomas Aquinas said: A small mistake at the start can be a big mistake at the end.

One More Suggestion: When you have bad news for a customer, be direct, be honest, be reassuring. And see if there's something you can give customers (better service, for example) at the same time that you're taking something away.

MISTAKE #8: INCREMENTALITY VS. CANNIBALIZATION

From a profitability standpoint, this is the crux of the relationship marketing issue. Are you simply cannibalizing yourself by rewarding customers for doing what they would do anyway, or are you truly achieving incremental results?

A bank in New Zealand earlier this year offered an incentive to customers who used their credit card three times in a month. Problem was, customers were already using the card an average of three and a half times per month. The bank was actually rewarding customers for using the card less!

Suggestion: Think and evaluate before launching a program. Make sure that your efforts are incremental, otherwise you're merely getting bogged down in a zero-sum game.

MISTAKE #9: CONFUSING NECESSITY WITH LOYALTY

I have close to 4 million miles on American Airlines, but American doesn't know whether that's because I'm loyal or because I have no choice: I live in San Diego, but I base my working life in the U.S. out of New York. American runs the only nonstop between San Diego and New York.
If you need to travel through the booming cities of the Southeast --Charlotte, for example--it's hard not to travel on USAirways. But I've yet to meet a frequent business traveler who actually prefers USAirways (although I think they're getting better). Anyone traveling back and forth between Charlotte and New York will rack up the miles, but out of necessity, not because of loyalty.

This has some serious implications. Loyalty builds barriers against competition. Necessity, on the other hand, can make competition welcome indeed. Loyalty leads to long-term profits. Necessity can simply lead to customer defections, once they have a competitive choice.

Suggestion: Survey your frequent users to ascertain who is loyal, and who uses you out of necessity. Launch cultivation programs at the "necessity" people, in order to convert them to "loyalists."

When all is said and done, the truth is that "relationship marketing" is a misleading term. In fact, if I ran the buzzword factory, I'd try to come up with better stuff.

Why is it misleading? Because the underlying metaphor of the term isn't really appropriate to the situations that marketers address. After all, when do you use the term "relationship"?

You use it when you're talking about your spouses, your children, your bosses, or your employers and clients--all of the people who require energy to deal with.

Relationships, by their nature, are energy-intensive on both ends. And as pointed out earlier, the stressed-out, overloaded and overworked 1999 consumer typically doesn't have any leftover energy these days. And certainly doesn't want to work at maintaining a relationship with your company.