Customer loyalty involves a situation similar to a successful marriage. Both parties are satisfied with their relations with each other. They are not worried every day that their partner will stop loving them, or run off with somebody else. They will come through misunderstandings and arguments with their relationship still intact, or even stronger. Developing a bond of loyalty between you and your customers is what database marketing is all about.

To build customer loyalty, each party has to know something about the other one: what they do, what they like, how to communicate. One of the most inexpensive but powerful loyalty building techniques is to get customers to enter their own preferences for services. This can be done in writing or over the phone, but today increasingly is done on the web. The advantages of creating a customer profile with preferences are twofold: you learn more about the customer, and the customer feels that he or she has been listened to by your company.

Tests and controls can show that customers who complete a profile with preferences are more loyal than other customers. (Were they already loyal, or did the preference creation process make them so?) For preferences to work, of course, you will have to modify your services or communications to customers based on their expressed preferences. That is where the database becomes important.

With an automated system you can have a means of using the database stored preferences on a daily basis to provide personalized services and communications. Employees throughout your company, all over America, have to be informed about these preferences and act on them day after day. Your web site will have to be modified. Will the cost of collecting customer profiles and preferences and acting on them be justified by increased retention and increased revenue? This can be determined by setting up control groups that are not asked to complete preference forms.

Loyalty is built and maintained by two way communications between you and your customer. Customers make purchases. You thank them for their patronage. You ask your customer for their preferences. They respond. You store their preferences in your database. Then you modify your services to make sure that their preferences are respected. Acting on these preferences involves a lot of little perks and services that show customers that you really are loyal to them. When they see the Wall Street Journal, instead of USA Today on the doorstep of their hotel room door in the morning in some new city without having to ask for it the night before, they realize that you listened to them and are being loyal to their preferences.

The database is central to the process: there is where the customer preferences and other data are stored. You use the database to create the personalized services and messages that build loyalty.

Sears obtains essential customer preferences on their excellent website. On www.sears.com you can look up any product through a neat preference cascade. I recently bought a new clothes washer on the Sears site. My purchase cascade started with Appliances. On this page I clicked on Front Load Washers (31 results). I clicked several options: Maytag, White color, and Capacity (2 + cu ft). This brought up a White Maytag 2.4 capacity front loader with complete product specs (several pages) with an “add to cart” button, which I clicked.

The “add to cart” button brought me to cross sale suggestions. This screen suggested a next best product: a matching dryer which mounts on top of the washer. I already had a dryer, but I was worried about the mounting. So I bit and bought the dryer at the same time (I am a sucker for convenience).

But that was not the end of it. Sears brought me to a profile screen where they asked me several important questions:

How I feel about brands:

• I typically buy top of the line name brand products
• I buy name brand products at a moderate price
• I am always looking for a bargain. I will try any brand if the price is right.

How I feel about technology:

• I buy products with the latest features & innovations
• I buy products with mainstream features & technology
• I am not interested in technology, keep it simple for me

Home status:

• Home Owner
• Renter
• Lived in my home for less than 6 months
• Plan to move in the next 6 months
• Plan to remodel in the next 6 months

Presence of Children:

• Baby (Age 0 - Age 1)
• Kids (age 1 - Age 12)
• Teenagers (age 13- Age 18)
• None

Look at these questions. They are wonderful! They can be used by Sears to market to me reflecting and respecting my preferences. I am a home owner who buys the latest features and buys top of the line products. Does your company have a similar system to learn what your customers want?

Using the Preference Information

Now that you have information about customers, their transactions, and their preferences stored in your customer marketing database updated frequently, a set of special programs which carry out a function called “trawling” can begin. Trawling implements a large number of marketing business rules. Trawling software looks at every record in the database which has been changed since the last update and applies business rules to the data it finds. For example, trawling will determine if the customer:

• Is about to have a birthday or anniversary
• Filled out or changed a preference profile
• Had an unusually large transaction
• Reached a milestone with the company in terms of total sales, years with the company, etc.

Each hit during trawling has a programmed marketing response. Depending on the situation and the customer’s preferences, the customer may be sent an email or a direct mail message, she may be called by customer service, a sales person may visit her, or the web site may have a special message for her if and when she logs on. These are automated communications. Once set up and programmed, they will take place automatically.

The National Australia Bank (NAB) serves more than 4.5 million customers.. Their National Leads system prioritizes events and alerts the appropriate bankers each morning so that they could take appropriate action. The goal is to insure that customers are contacted with meaningful opportunities at the right times through the right channels. The system works this way:

• The warehouse is updated with an average of 2.2 million transactions per day.
• Every night, queries “trawl” the warehouse to search for any unusual changes in customer behavior, or preferences
• Once a month, each customer is scored using a model which predicts the customer’s propensity to purchase various products, and propensity to respond to product offers. The best leads are selected and sent to the bankers.
• Every night 250 communication vectors are run combining the events detected plus the preferences and the propensity predictions. The software recommends the action to be taken via ATM, email, mail, or leads to call centers, branches or business bankers who follow up with a phone call or personal mail.

Trawling Results

• During the first year of this system more than 1 million leads and $4 billion in growth opportunities were sent to NAB bankers for action.
• During the next six months, 570,000 new leads were sent which resulted in the closing of $4.4 billion worth of new loans.
• During the second year of the system, premium sales of banking products increased 25% over the previous year while sales of wealth management products increased by 40%
• The close rate for leads increased by five times over the close rate before the new system began.
• The bank achieved at $391 million return on investment on one campaign.

So, how do you get started?

Create a preference profile on your website. Study the Sears example. Do not ask too many questions. Think: “Why would anyone want to fill out this profile?” Come up with some good answers. In the Sears example, Arthur was buying an appliance. He wanted to be sure that Sears knew what he wanted.

How soon after the profile is filled out should you act on the expressed preferences? The answer is right away. The person most likely to buy another German Chocolate Cheese Cake from you is a person who has a mouthful of it right now. If Arthur just bought a washer and a dryer, he may need a dishwasher, or a new refrigerator. He may be making his decision in the next 24 hours. You will need to develop business rules that spell out what to do when a customer has filled out preferences on a profile form. Too many companies do nothing at all when a customer fills out a profile. That is like leaving money on the table.

Arthur Middleton Hughes is Vice President / Solutions Architect at KnowledgeBase Marketing. He is the author of Strategic Database Marketing 3rd Edition (McGraw-Hill 2005). Arthur can be reached at Arthur.hughes@kbm1.com or 954 767 4558. Company: KnowledgeBase Marketing, Inc.