Why Loyalty Programs Might be a Necessary Evil

At the start of this year I wrote a blog post on why loyalty programs offer little benefit to businesses (http://leontribe.blogspot.com/2009/01/why-loyalty-programs-suck.html).

This is still true, however, last night I saw a presentation by Don Peppers. Don is something of a known figure in the CRM arena. In this case I mean CRM in a marketing sense i.e. getting to know your customer better and interacting with them appropriately as opposed to CRM software. He doesn't have a wiki page to point to but you can see what he is about at his Twitter page (http://twitter.com/DonPeppers)

Anyhow, his talk was primarily talking about loyalty programs and while he agreed they do not offer sustainable competitive advantage in themselves, he did provide a reason to have a loyalty program I had not previously considered.

If I'm in retail I have one big problem in getting to know my customer. While I know what goods leave the store and I know what money I receive for them, I have no idea who bought a specific item and why. This is a problem if I'm going to better understand the kinds of customers I have and how I can better anticipate their needs.

In comes the loyalty program. By handing over my personal details and swiping it when I buy my goods, the retailer now bridges the missing link. They know who I am and what I've bought. They can now build up a historical profile of purchases, repeat purchases, link it to my demographic data etc. etc.

Here is the thing, if the only purpose of a loyalty program is to link a customer to their purchases and to review their behaviour to better understand them, is there an alternative which may not be as costly but could also deliver sustainable competitive advantage within itself?

In my 'What is CRM?' post, I talk of the ultimate grocery store (http://leontribe.blogspot.com/2009/01/what-is-crm.html) that knows your shopping list and puts the shopping in your car before you've even entered the store. Let's take it a step further. Here in Australia, the two major supermarkets offer home delivery. Unfortunately, they charge for the service, the range of goods is not as wide as in-store, the quality of the fresh produce is not as good as in store and in some cases they charge a premium of 10-20% on top of the in-store price. There is not much incentive to use home shopping.

However, if I register for home delivery, I provide all the details I provide for a loyalty card and the store can link it to my purchasing habits. They also have my physical address, not my postal address. No need for another card in my wallet, no need for the retailer to keep track of points and keeping money on their books to cover their value and no need to reinvent the wheel.

Delivery could be set up so that every week/fortnight/month the same goods are delivered to your house and the money automatically deducted from your bank account. It works for newspapers and public utilities, why not for groceries? Why can't groceries become another utility?

I raised this question in the talk and the response was essentially "not everyone wants home delivery". Really? People prefer to leave the house to crawl around a supermarket for 1-2 hours suffering screaming children (theirs or someone else's) and to haul a stack of shopping in and out of their car?

I asked my wife, who is in marketing. Her response was "not everyone is online, nannas wouldn't use it". Really? The elderly would prefer to haul a shopping trolley and shopping around rather than have it come to their house like the milkman used to? Sure, not everyone is online but the store could provide terminals where people could set up their shopping lists and deliveries. They could even have friendly staff to help those unfamiliar or unable to operate a computer.

What about the cost? Well the first response is how does the cost compare to a loyalty program? Even if a loyalty program is cheaper, there are considerations of improved inventory management from knowing the monthly purchasing requirements of your customers and knowing precisely which goods they want (if someone walks into your store and make a purchase, you do not know what they wanted, only what they bought from what was available). Arguably stores would not need to be as large or hold as much stock as they would only be catering to 'incidental shoppers' with the bulk shoppers taking the easy option. This provides savings in wages, rental and general store running costs.

A delivery service may not be the answer, but it should not be assumed that a loyalty program is the best fit for all businesses. Ultimately, the answer should be as close as possible to a system that captures the information a business needs, provides perceived benefit to the customer and is sustainable.

Codeplex hosting links to non-open source projects

Imagine my excitement to see the new Sales Performance International (SPI) Accelerator finally released on Codeplex (http://crmaccelerators.codeplex.com/Release/ProjectReleases.aspx?ReleaseId=31556). Well a pdf pointing to it, at least.

I thought it a bit strange that I had to register with some mob called Mondo to get the software but there it is. The zip file you get contains an installer and some pdfs but that's about it. As it turns out the free version is a 3-user version with the full version coming at a cost.

So, here's the problem. The CRM Accelerators are created as 'springboards' for further development. To quote the accelerator home page (http://crmaccelerators.codeplex.com/):

'all samples are supplied with full source-code so they can be extended further to meet specific customer requirements'.

Moreover, the requirements for hosting a project on codeplex are (http://codeplex.codeplex.com/Wiki/View.aspx?title=CodePlex%20FAQ#Requirements):

1. You must choose a license for your project (license resources: Open Source License page on Wikipedia)
2. It must be an ongoing project (no "abandoned" projects)
3. It must have source code (no non-software projects)

The codeplex page (http://crmaccelerators.codeplex.com/Release/ProjectReleases.aspx?ReleaseId=31556) has no source code, so I emailed Mondo asking for the source code and got the following response from one of their directors:

----

Leon,

Thank you for your question.

Our vision is to begin to drive sales effectiveness through day-in-the-life activities of sales professionals and managers by combining sales process, the supporting methods and tools, overlaid in a CRM system with formal training and informal knowledge management.
We sell the accelerator (full version) through a community of dedicated partners, but decided to make a free version with limited functionality available to the Microsoft community to generate excitement and awareness around the Microsoft accelerators.
There are Sales Performance International, SPI, (the company that owns the Solution Selling ® methodology), intellectual property rights that we have to respect and we have an R&D investment that we have to protect. Thus, unfortunately, we can’t provide you with a copy of the source code.

Please let us know should you have any questions.

Thanks.

---

I replied asking if the placing of the add-on on Codeplex is some sort of oversight and got the following.

---

I see your point. However, the decision was made and driven together with Microsoft who is hosting the site. I think it is a great opportunity for companies who want an introduction to the Solution Selling ® process and the MSCRM accelerators in general that they can download a whitepaper that talks about the opportunities in this area. The software itself is not available for download on the codeplex site – although the whitepaper is. To download the software you have to register for your trial copy at the Mondo website (www.mondo.dk/dk/freemssa)

If you are interested we can talk about an arrangement for the Accelerator for you and your organization for for example extending it or otherwise modifying it.

---

So the point of view of Mondo and, by implication Microsoft is that the 'project' being hosted on Codeplex is the whitepaper and not the software and therefore it is fair use. This being said, even the whitepaper has restrictions on its reproduction as stated at the end of the document.

Addendum 23 August 2009:

After community feedback, Microsoft has decided to move the SPI accelerator from CodePlex to a new home:

http://crm.dynamics.com/solutions/sales-performance-international-accelerator.aspx

See Microsoft's Reuben Krippner's comment below for the details. I think this is a great testament to the attitude of the modern Microsoft culture, considering and responding to the concerns of a passionate community.

Handy links for non-technical CRM administrators

I was asked to put this together for work and thought I'd also post it here for reference. If you manage a Dynamics CRM implementation and want to keep track of the latest developments/add-ons etc. these should keep you on the right path.

There are plenty of other, excellent resources out there but I've chosen these specifically because their content is not necessarily focused at developers but more at general administrators/managers.

There is a bias towards Australian resources, but even folk outside of the antipodes should get some value from these.

In person:

Sydney CRM User Group (SCRMUG): http://www.mscrm.com.au/UserGroups/Sydney/tabid/59/Default.aspx

Hosted by CRM MVP Guy riddle and generally held once a month. Always feature a roundup of the latest news in the world of Dynamics CRM

Online:

Twitter feeds:

@leontribe

@ SanjayJain369

@JaAG

@SCRMUG

@MSDynamicsCRM

Blogs:

Catherine Eibner (http://blogs.msdn.com/ceibner/)

Guy Riddle (http://guyriddle.spaces.live.com/Blog/)

Menno te Koppele (http://www.tekoppele.com/Blog/)

Dynamics CRM in Australia (http://microsoft-crm-au.spaces.live.com/Blog/)

Dynamics CRM Team (http://blogs.msdn.com/crm/)

Dynamics CRM UK (http://blogs.msdn.com/ukcrm/)

Pages:

Dynamics CRM 4.0 Resource Center (http://rc.crm.dynamics.com/rc/regcont/en_us/opdefault.aspx)

The Microsoft Beast Stirs

An interesting confluence of events brings me to the conclusion that Microsoft has finally stirred from its slumber in relation to Google.

On the Google side we have, amongst others, the following:

• Search engine and related advertising
• Google online applications
• Google Chrome Browser
• Google Chrome OS (http://googleblog.blogspot.com/2009/07/introducing-google-chrome-os.html)

A number of these directly hit at Microsoft. Google's online applications closely mirror Microsoft's Office, the OS, based on Linux will directly compete with Windows. Google Chrome is awesome although pages with .Net code behind them seem to have trouble rendering...

To date, Microsoft, in my opinion, hasn't really done too much or at least not too much of consequence.

However, this has now changed. Firstly, Microsoft has announced it will be taking Office online (http://arstechnica.com/old/content/2008/10/microsoft-office-will-float-to-the-cloud-with-office-web.ars). Google apps has frankly always underwhelmed me. While the concept is great the functionality was simply never there for me and hasn't evolved too much over time. I know of no Windows-based workplace which has abandoned Office to use Google Apps. Hopefully Google will now step up to the plate and actually provide something equivalent to Word and Excel.

Putting Office in the cloud is a passing shot across the bow of S.S. Google. The really smart play is getting their search engine right. Microsoft have recently changed their search engine from Live Search to Bing (http://www.microsoft.com/presspass/press/2009/may09/05-28NewSearchPR.mspx). I'm still in the Google search engine camp because, frankly, it returns better results but let's assume Microsoft get it right. People will start using Bing instead of Google and suddenly no more Google Adverts in search. Based on Google's last annual report, ad revenue was about 30% of their business. That's a big hit to take. Sure there will be Google ads in web pages but I know I happily ignore them and many browsers remove them for you.

The latest Microsoft-Yahoo co-venture (http://www.pcworld.com/article/169295/bing_was_tipping_point_in_microsoftyahoo_deal.html) is the rallying of the troops and providing a potentially viable alternative to the Google search-ad business model. I'm expecting price wars galore, FUD campaigns and wars of attrition. Exciting times.

If you think Google search is too big to be toppled, cast your mind back to the days of Mosaic and Netscape Navigator (http://en.wikipedia.org/wiki/Mosaic_(web_browser)). There was a time when Mosaic was the only browser of choice for the internet. Now its a distant memory. For a more recent example, remember MySpace or GeoCities (http://en.wikipedia.org/wiki/GeoCities).

The only thing that is inevitable is change and that the victors write the history books.

Sales Pipeline Management 101 and How CRM Can Help

Recently I was at a two-day conference talking about the slowing economy, business opportunities and the like. It was basically 16 hours of presentations with people offering a few insightful tips and advertising their services.

One of the great takeaways I got was the 'pipeline formula' from Simon Harris of ActionCOACH. I'm sure I'd seen it before, and it is in various places on the internet, but it is nonetheless a great little tool:

Number of Leads

*

Conversion Rate

=

Number of Customers

*

Number of Transactions

*

Average Sale Value

=

Revenues

*

Margin

=

Profit

Most people are obsessed with the bold factors (Customer numbers, Revenues and Profit) and often people implement CRM systems thinking they will build it and one of these will come. Here is the secret; you can do nothing about the bold factors but you can do lots about the rest. Moreover, CRM systems help you track and measure all the non-bold factors. This is how Microsoft Dynamics CRM does it...

Number of Leads

Dynamics CRM has a lead record out of the box. Here you can upload all your generated leads or enter them on the fly

Conversion Rate

At the press of a button, a user can convert a lead to a sales opportunity, contact and company. Also as every record has a status associated to it in Dynamics CRM, tracking conversion rates is simply a case of counting those with a successful status against those with an unsuccessful one.

Number of Transactions

Dynamics CRM tracks your sales opportunities until they close. Looking at won sales opportunities, over a given period, we see how many sales have been made.

Average Sale Value

The value of a given sales opportunity in Dynamics CRM is either entered manually by the user or uses the products and services, also stored in Dynamics CRM, to determine the value. Therefore tracking the average sale value over a period is simply a case of averaging the value of all the closed and won opportunities over that period.

Margin

For a given product record, Dynamics CRM allows a user to store the cost of the product or service as well as the sales price. Therefore it is easy to work out the margin of a product or, for an opportunity with products attached, the margin on the opportunity.

So there you have it. If you want to improve your pipeline, consider the 'pipeline formula'. If you want to track how well you're doing, get a CRM system like Dynamics CRM.

Take profits in Salesforce? Unlikely

Those wise analysts at Morgan Stanley have suggested investors 'take profits' from their Salesforce.com shares.

http://blogs.barrons.com/techtraderdaily/2009/03/25/salesforcecom-take-profits-says-morgan-stanley/

This is a nice way to say 'sell out'. Here is the thing, unless you'd bought your Salesforce shares before 2006 (three years ago) you wouldn't have any profits to take. Apart from a brief period in late 2006, any other buyers will be selling at a loss.

Where were these analysts back in September 2008 when the financials screamed 'overvalued':

http://leontribe.blogspot.com/2008/09/valuing-salesforcecom-and-its.html

or at the height of the bubble around three months before this? The financial reports were the same and yet the so-called experts felt $70/share for Salesforce was great value.

The analysts will blame the economic downturn but as can be seen in in the blog post above and in this one, the financials of Salesforce have been following a steady path for the last five years.

http://leontribe.blogspot.com/2009/02/salesforcecom-revisited-still.html

Moral of the story? Understand analyst motivation. It is not always to provide impartial advice to the market for the betterment of the average Joe investor.

All Aboard the Cluetrain, its been waiting at the station for 10 years

"Markets are conversations"

"These networked conversations are enabling powerful new forms of social organization and knowledge exchange to emerge."

"To traditional corporations, networked conversations may appear confused, may sound confusing."

The above perfectly describe what we now see through technologies such as Facebook and Twitter. These quotes also describe the challenge corporations are having in working out how to interact with the new phenomena of 'social networking' and how to converse with their customers in these new channels. The Skittles Experiment is an excellent example of how corporations are jumping into the new pool to see if they can swim or not.

The 'gurus' now talk about authenticity in corporate messaging if communication in these new channels is to be successful.

Here is the thing. Social networking is not new. The three quotes at the top of this post come from The Cluetrain Manifesto, written ten years ago before Facebook, before Twitter and before the term 'Social Networking' was probably even coined. The Cluetrain strongly advocates corporations to interact with customers as if they are human beings and not demographic cross-sections of society.

Here is the next bit of good news. The Cluetrain Manifesto is available to read on the Internet for free, here it is. To understand how to speak to customers or see how social networking had its seeds in the world we now call Web 1.0, read the Cluetrain Manifesto.