Howard Seibel's Customer Acquisition, Retention & Loyalty Blog

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College-oriented social networking site Facebook faces customer backlash against a new feature it just launched. The company claims it did copious research with its members before implementing the feature, but still was surprised by the magnitude of the negative response.   

The company failed to follow a few simple rules of customer-centric product development development:

• Anticipate that new features will be liked and disliked by different segments of customers
• Give customers who dislike a new feature an easy way to avoid it
• Give customers who like a new feature a way to pay to keep it

The company should be pleased, however, at the passionate response its members have shown, and try to channel that enthusiasm into better research and development. And it should also be pleased that a lot more people are talking about Facebook today than they were yesterday.

Retention's Unfortunate Embarrassment

By now you’ve heard about the recent episode in which an AOL customer recorded his conversation with a hostile customer retention phone rep.

AOL tried to pass off the rep as a rogue, but earlier this week, AOL’s customer retention manual got posted online (hurry before it’s removed), and the company’s aggressive set of policies and procedures came to light.

On the same day, Cingular’s “customer value” model was publicized that shows that its "valued customers" aren’t really so valued. 

While AOL and Cingular deserve much of their embarrassment because of the cynical and ham-handed way they set about achieving their objectives, there’s an unfortunate trend emerging.   

Companies are being made to feel embarrassed because they want to (1) retain customers and (2) treat some customers better than others (3) train their phone reps to build rapport with callers.

There’s nothing wrong with any of these objectives, but there are a couple of lessons here:

• Companies should assume that their internal customer policies and procedures will be leaked to the public, and should therefore be written accordingly

• Companies should avoid the mystery about what sorts of behaviors get rewarded (many do – it’s called a rewards program); customers don’t mind playing the game if they’re told the rules, and the rules are applied consistently over time

Saving While You Spend?

Amazon and Fidelity announced a partnership in which Fidelity will be the first tenant in a financial services store within Amazon.com. They hope that consumers will shop for mutual funds and other investments before, during and after they shop for books, toys, and clothes.

Can marketers get people to think about saving and investing while they’re really thinking about spending? Fidelity might get some clicks and leads from this partnership, but the overall effect will be small.

This reminds me of an entrepreneur who contacted me when I headed marketing for an online brokerage firm. He wanted to rent space in major shopping malls and stock it with brochures of mutual fund companies and brokerage firms. People would stop by to learn about investing while they shop, he said. Come back when you’ve had a success, I said.

The Fidelity/Amazon arrangement continues the misguided “save while you spend” trend on which I’ve previous posted.

Customer De-Acquisition

I have a business checking account at Commerce Bank. Last week, I was shuffling money around and left the account with zero balance.

A few days later, when I tried to deposit a check, I was shocked to find that my account was closed. An apologetic phone rep informed me that bank policy is to close any checking account that has a zero balance for two days. I would have to visit a branch to get it reopened.   Couldn’t do it over the phone. It happens a lot, she said.

Maybe Commerce Bank has a good reason for not wanting empty accounts on its books, but empty and dormant are different things. 

I like Commerce Bank; business checking is free and they’re open Sundays. I went to my branch and allowed them to acquire me all over again.

What policies does your company have that de-acquires customers?

What's Next - Direct Mail and Telemarketing?

MSN Search has launched a sweepstakes designed to acquire users of its search engine, which is in third place behind Google and Yahoo.  Yahoo is reportedly considering lauching promotions of its own to acquire loyal users.  Fascinating to see search engines companies edging into classic customer usage stimulation techniques.

According to www.msnsearchandwin.com, consumers simply visit MSN Search and enter search terms as usual.  Winners will see a message atop their results along the lines of  "You may have just won a free Xbox 360 from MSN - click here to find out."  Will be interesting to see if winners click through after seeing the message, which reads like typical spam.

Google to Pay for Customer Acquisition

I was surprised to read that Google is considering paying Dell $1 billion to pre-install its toolbar in new Dell PCs. This represents a big jump from Google’s current customer acquisition budget, which I estimate at approximately zero.

Chances are, you and I first heard of Google and started using it because of a press article or word of mouth. Google acquired us essentially for free.

Companies like ISPs and anti-virus software providers have long considered the desktops of new PCs to be valuable real estate for reaching consumers. Google is taking it one step further, believing that if its toolbar is pre-installed, consumers will rarely bother to delete or turn it off, sort of a lifetime customer retention program.

This is the same principle that banks use when urging you to take the time to set up online bill payment, or online retailers when entering your birthday and wish lists – stickiness lowers customer retention costs.

The $1 billion payment reportedly will cover 100 million PCs, giving Google a customer acquisition cost of $10 per customer. Google is hoping that because of the toolbar, these customers will make millions of incremental Google searches over the lifetimes of their PCs.  Depending on how often they click on resulting ads, Google could quickly make back the $10 and it's all profit from there.

Apple's Emerging Customer Retention Problem

Excellent NYT article “Good Luck With That Broken iPod” (registration req’d) about a customer’s dissatisfaction with his iPod’s fragility, and difficulty and high cost of repair.

Apple is profiting because of the iPod’s wonderful design and ease of use, but seems to be ripping off customers with a expensive product that’s cynically designed to last only a short time.

It’s not hard to predict that competition will soon fill the void, and arrogant Apple will have a serious customer retention problem.  Here’s my three point marketing plan for Apple to avoid permanently damaging its brand:

1. Show that it cares about quality; Apple should admit the problem and commit to developing sturdier products
2. Help customers cope: Apple should offer reasonably priced extended warranties and accidental damage plans and improve its self-service capabilities
3. Implement relationship marketing techniques: Apple should strive to build a complete database of its customers, gather and use data intelligently, and develop tailored communications streams to improve its image, keep customers informed, spot dissatisfied customers, make special retention offers, and make amends in general

Meanwhile, let's watch to see how this nastly problem affects Apple’s sales and stock price.

Rant Targets Direct Marketing

The blog Ad-Verse yesterday posted an overbaked but funny take on so-called relationship marketing called "Direct Marketing: A Science of Stupidities" that I spotted on AdRants.

While celebrating a 97% failure rate seems strange to the uninitiated, the truth is that direct marketing is actually less stupid than most other types of marketing because it depends solely on response, putting the customer in complete control.  The failure rates of other types of marketing, say, word-of-mouth or product placement, can't even be measured.

The eleven steps outlined for direct marketers, however, are worth reading, and I believe most good marketers are doing many of them already.  Self serving advertising doesn't generate response -- and if it doesn't generate response, you're going to stop doing it if you're smart.

New York Times Rewards Program Misses the Mark

The New York Times last week announced its new rewards program, TimesPoints.  Like all daily papers, the Times is struggling to acquire and retain subscribers and single-copy readers.

In TimesPoints, participants earn points by patronizing thousands of restaurants, hotels and online stores. They redeem points for dollars off NYT subscriptions and gift cards at major merchants.

Two experienced companies, Advantex and Rewards Network, provide the infrastructure, and require only the simple step of registering one or more credit cards to enroll.

TimesPoints leaves me scratching my head for three reasons:

1. Value proposition seems backwards.  TimesPoints would be more compelling if participants earned points by subscribing and redeemed them for exciting dining, shopping and hotel experiences, not the other way around.

2. Doesn’t seem to boost loyalty to NYT.  Non-readers of the NYT can enroll, and they may redeem points for non-NYT prizes, so where’s the benefit to the NYT?  TimesPoints also fails to motivate the behaviors the NYT should value most – subscribing, renewing, referring friends, buying archived articles, photos, merchandise, etc.

TimesPoints does get a few things right, though.  Telling participants they can earn points by doing the things they already do is a welcome message.   And because the NYT is costly ($465 and up per year), it might appeal to a small number of readers for whom saving money on the NYT is more compelling than vacationing and dining out.

The economics of TimesPoints, in which the restaurants and hotels seem to fund the subscription discounts, are almost certainly favorable to the NYT.

Information Transparency a Problem for Marketers

SmartMoney has an article that should be disturbing to the credit card industry “10 Things Your Credit Card Company Won’t Tell You.” Of the ten things, several involve card issuers withholding, disguising, or intentionally making information about prices, policies and procedures difficult for customers to understand.

Other businesses thrive on making information less than transparent.  Mutual fund companies and 401(k) providers are required by law to disclose hidden fees and expenses, but do so in hard-to-read disclosures. Wireless phone carriers and cable companies bill customers for surcharges and “recovery fees” that masquerade as government-mandated taxes.  Even some airline and travel sites quote airfares without taxes and fees, hoping consumers won’t notice until it’s too late. Many hotels surprise guests with mandatory “technology,” “energy,” and other fees.

Although customer-unfriendly, these practices are highly profitable. Most customers don’t notice or if they do, they throw up their hands.  But relying on customer inattention, laziness, and inertia doesn’t seem like a good long term loyalty model for any company.  Customers shouldn’t have to “beware” of the brands they do business with.  Given the competitiveness of these businesses, why haven’t we seen more “no hassle” products in which information is transparent?