Launched in March 2009, Foursquare has established itself as a top player in location-based services. It allows users to “check in” to a business when they are at (or technically in the vincinity of) a business. In exchange, users earn fancy badges and mayorships, plus social benefits with their friends and other users located nearby. In the short one and a half years of its life, Foursquare has quickly signed up close to 3 million users. Following this surprising enthusiasm from consumers toward such location-based services, Twitter introduced its own location service earlier this year, where Twitter users can attach a location to their tweets. More recently, Facebook also introduced its own location-based service called “Facebook Places”. Through the Facebook iPhone app or mobile web interface (touch.facebook.com), users can check themselves and their friends into locations, and share that information with other Facebook friends.

Photo by Flickr user Anthony Quintano | CC 2.0

Mobile Check-Ins and Loyalty

The fast growth of mobile check-in services has sprung other services that target more specifically at customer loyalty. Some of these services are built on existing mobile platforms such as Foursquare, and others use their own proprietary system. Here I would like to briefly mention three such services as examples of what is taking shape in the field of location-sensitive loyalty.

• Topguest: So far, it is focusing on the travel industry, especially hotels. When you sign up for a Topguest account, you can sync your existing location service accounts with your Topguest account. Services supported include Facebook, Twitter, Foursquare, Gowalla, and brightkite. Once synced, when you check in at Topguest’s network of partners, say, a Holiday Inn, you will receive bonus points or rewards in your Priority Club account. Topguest website says it is planning to expand to fine dining restaurants and other travel services.
• shopkick: A new kid on the block, shopkick differs from the other services by requiring a special equipment to be installed at the retailer’s location. With this TV-screen looking equipment inside a store, consumers with the shopkick app on their mobile phone can pair up with the device to receive reward points for being there. While this equipment requirement certainly raises deployment cost for retailers, it rewards loyalty based on more precise location, instead of mere proximity to a business. Imagine, for instance, an apparel retailer can place one such device in its dressing room area to encourage consumers to try on its clothes.
• Get Glue: In many ways, Get Glue works very similarly to Foursquare. But instead of checking into physical locations, Get Glue checks into a variety of entertainment activities, such as listening to a new Coldplay CD or watching an episode of Entourage. Similar to Foursquare, Get Glue users can express their opinions about the various entertainment activities, and they earn rewards in the form of stickers that are displayed on their profile pages. So far, HBO, Showtime, Barnes & Noble, and Universal have all partnered with Get Glue to reward their viewers/readers for their loyalty.

Relevance/Context is Key

As a very new field, this location-sensitive marketplace is seeing new apps arriving every day. It is too early to tell which one of these will eventually come out ahead. But as a business wanting to use such services to enhance business and reward loyalty, the myriad of choices can be confusing. Instead of getting lost in the sea of possible choices, the most important word to remember is relevance. When one takes a step back and looks at the bigger picture, all of these location-based services really promise one potentially great thing: interaction based on the context in which the consumer is in, be it physical locations or specific activities. Like traditional loyalty programs, check-ins offer businesses information not captured before on consumers’ whereabouts (or contexts) and subsequently an opportunity to interact or reward based on that knowledge.

The ability to build on this context-relevance will be key to the success of any efforts in this area. As a business, before you get stuck trying to figure out exactly what services to use, here are a few more important questions to consider:

• In what contexts (physical locations, consumption situations, etc.) are your products and services relevant to consumers?
• What are the different needs consumers may have under different contexts?
• Can your marketing messages be varied and adapted to the different contexts?
• What analytical capabilities do you have to capture and understand the contextual information you can get from consumers?
• How can you integrate contexts into your existing customer relationship management system?

For most marketing channels and platforms, clutter always becomes an issue at later stages of development. To stand out in this mobile playground, relevance will have to rule, and your marketing needs to shift towards thinking contextually. As some say, success is all about being at the right place at the right time. Only when you can prove yourself useful or helpful to your customers at the right moments will they reward you with their loyalty and overcome their privacy concerns to give you their invaluable information.

A while ago, I created a search column in Tweetdeck to see what people have to say about loyalty on Twitter. To my surprise, once the column was created, tweets just started flying in. There has been rarely a day when I do not see at least a few hundred public tweets containing the word “loyalty”. Apparently, loyalty is on people’s mind often. Out of curiosity, I started to dig a little deeper and more systematically into what is being said about loyalty in these tweets. While I’m not quite done with my analysis yet, here I’d like to share some of my initial discoveries.

What/Whom Are People Loyal to?

When we talk about loyalty, we usually imply an object or person that we are loyal to. From the tweets that I have analyzed, here are the most often objects of loyal passion:

• A romantic relationship or partners in the romantic relationship
• Friends and family
• Sports team
• Brands/products
• Co-workers/boss
• Dogs’ loyalty to their owners (such as this touching story from Wikipedia about this Hachiko dog)

Interestingly, when specific brands or products were mentioned as objects of loyalty, mobile products such as cellphones and mobile providers were the most frequently referred-to product category. For instance, earlier today, there were a few retweets of the message by @Natemz below.

In this case, the tweet is actually a counter-loyalty message, where product features beat loyalty. But it still implies loyalty that some people used to have for BlackBerry before they switched to Android. Of course, this frequent association between mobile products and loyalty in tweets is most likely biased, given that Twitter is very much a mobile platform. But I have yet to come across any other product or product category that gets mentioned nearly as frequently.

What is Loyalty?

It would be rather ambitious to try to capture the full meaning of loyalty in 140 characters. But exactly because tweets are short, they also tend to be very on the point. The most frequent words I have seen tweeple use to describe loyalty are: trust, respect, honesty, and commitment. If I were to summarize a general definition of loyalty from these tweets, it would go something like this: a loyal relationship is one in which all parties respect one other, are honest to and able to trust one another, and are committed to making the relationship last.

Another word that was often brought up with loyalty is love. While you would think love and loyalty go hand in hand as those other words above, many tweets contrast love with loyalty, and most if not all prefer loyalty over love. That certainly shows the power of loyalty in people’s minds. But one tweet led me to this simple poll on Tagged asking you to choose love or loyalty. On completing the poll, I saw that 57% of respondents chose love and 42% preferred loyalty. While the relative importance of love vs. loyalty cannot be determined just yet, the fact that loyalty is being compared to and almost comes close to one of the most universal concept among the human race suggests it is something we cannot ignore.

Who Are These Tweeple?

So who are all these people that have been talking about loyalty on Twitter? While I have not been able to run a complete demographic analysis on these individuals, I am going to classify them psychologically into three categories based on their message content:

1. The loyalty advocates/evangelists: these are individuals who fully appreciate the power and importance of loyalty and express it passionately in their tweets. To these people, loyalty is critical to the cohesion of a family and a relationship, the strength of an army and a nation, and even success in life in general. They are also the ones who say they will choose loyalty over money and everything else in a heartbeat.
2. The loyalty wounded: individuals who express disappointment in loyalty in general, most often from their experience of betrayal by someone in the past. In their tweets, they question the existence of true loyalty in today’s society, and they lament the loss of it in their life and their relationship.
3. The loyalty objectives: these are most often individuals who work in the customer loyalty industry. They certainly cherish the value of loyalty like the first group. But their messages express a more neutral tone of support. They focus mostly on the approaches to take to achieve customer loyalty, whether it’s technology, product superiority, or customer service.

Through this interesting exercise on Twitter, I find my eyes opened by what other people are thinking about loyalty. As I move further along with my analysis, I see potential for more ideas and concepts to emerge, and the best part is that these are all natural conversations that people are having. Do you have a loyalty question you would like to see answered in my analysis? If so, please leave a comment here and I will try to find the answer for you.

As I stood at a busy intersection on People’s Avenue South in Chengdu, China, I am dazzled by the high-end designer labels I see. Louis Vutton, Dior, MaxMara, and many other luxury brands all opened up shop here. With the fast economic development during the last decade, there has arisen a new class of rich Chinese consumers who spend their money generously on these luxury goods.

 
Photo by Flickr user yachtfan | CC 2.0

Of course, those who can afford to buy luxury brands are still far and few in between. According to the World Bank, 1% of Chinese families now possess 41.4% of China’s wealth. This represents a bigger gap than that of the United States, whose corresponding number is 5% families owning 60% of national wealth. The Gini coefficient, an index used to measure income inequality, has also surpassed the warning level of 40 in China ten years ago to reach 47 today.

Although the wealth in China is concentrated in a very small group of consumers, the sheer population in China makes this small group not so small in absolute size. Together, these consumers spent $9.4 billion on luxury goods last year, well on the way to overtaking the US to become the second largest market for such goods, only after Japan. According to the same China Daily article that reported this number, the luxury buyers in China fall into three different groups:

• The really wealthy consumers
• The trendy young consumers who want to be on the cutting edge
• The white-collar professional workers who earn a sizable salary in China

The article reports that one unique characteristic of the luxury goods marketplace in China is this third group of consumers. While in the US these professional workers are often well-educated bargain hunters, the same group of consumers are major consumers of luxury goods. I contribute this to two reasons. One is the much higher than average income of these workers, especially those who work for foreign-owned or joint venture enterprises. The other reason is the low quality plaguing many domestic products and the general low consumer confidence in businesses. Take my parents’ landline telephones as an example. In the last few years, they have had to replace multiple phones because they all broke within a short period of use. In contrast, the phones that I bought more than ten years ago in the US are still functioning perfectly. No wonder Chinese consumers are willing to shell out money to buy quality products that they can trust.

Before I end this discussion about the new rich in China, I’d like to leave you with a humorous video from China Daily. It will give you a flavor of rich Chinese’s obsession with luxury goods and its related issues. Enjoy!

I am spending a few weeks in China. This time, I sense a really big change in the Chinese marketplace. Not only has income level risen dramatically since my last visit a few years ago, but the Internet has become an even more pervasive force in Chinese consumers’ daily life. I confess that I have not done extensive research about marketing and consumers in China. But there are a few notable observations that I would like to share with my readers.

Discretionary Spending on the Rise

When I graduated from college in 1996, I was paid slightly over 1000 Yuan (about $140) a month as an assistant editor at a publishing company in Beijing. Today, my college classmates are often paid more than ten times that working in their professional jobs. Without a doubt, the standard of living has increased dramatically in China. As the cost of basic living items (excluding housing) is still pretty low, Chinese consumers in metropolitan areas are enjoying more and more discretionary income. This has boosted spending on discretionary items such as travel and automobiles. A lot more consumers are traveling both within China and aboard. Having a car is also becoming more commonplace.

Housing Gap

With the high population density in China, housing (sold by square meters) is still expensive and is one of the largest expenses in many consumers’ budget. In popular metropolitan areas such as the capital city Beijing, condominiums cost from a few thousand yuan (= a few hundred dollars) per square meter to upwards of $10,000 per square meter, which puts the price tag of a 2000sqft condo at $1.8 million. Real estate is also where the big gap comes in. While some consumers can barely afford a decent-sized dwelling, others are buying multiple homes (and even more amazingly, having all of them paid off already). These latter buyers have helped make the already expensive housing market even less affordable. As a result, the Chinese government has imposed a limitation of three homes per household. If you want to buy more than that, you will have to pay by cash and won’t be able to obtain a mortgage for it. The purpose of the regulation is to help bring housing price down so that more consumers can afford a decent home.

Groupons Extremely Popular

Chinese consumers love a great deal. With the help of the Internet, companies are reaching out to consumers with attractive offers for their products. One particularly popular promotional technique is groupons (group coupons). Basically visitors to a groupon website choose an incredibly low-price offer that they are interested in. When the pre-specified number of signups is reached, these consumers get to buy the product at the low price. For instance, a complete meal at a local restaurant may be offered at half the price or even lower. The idea is to use such groupons to introduce one’s products and services to a large group of consumers. Similar business models have been tried in the US during the dotcom era. But none of them was very successful, due to low adoption rate. In China, the sheer size of the marketplace makes this business model much more feasible, and many groupons’ imposed threshold is reached within an hour of their initial posting. Many Chinese workers are rumored to spend a large amount of work time scouting such groupons online.

Cards instead of Cash

It has been a while since Chinese consumers first started using plastic cards. But a few years ago, most cards are ATM cards mainly used to withdraw cash. Today, both debit/check cards and credit cards have become more common. Many retail establishments accept such plastic cards as payment. When it comes to e-commerce, however, the situation is slightly different. It is not very common to pay by credit card for an online transaction. Instead, consumers usually pay at product delivery, which is often handled by small delivery firms rather than large companies such as Fedex or UPS. This personal delivery system works well in China for two reasons: high population density in metropolitan areas, and low-cost labor. As a result of this personal delivery system, taking payment at delivery becomes a low cost option compared with paying transaction fees for credit cards.

Social Media is Developing

Social media is evolving with its own unique flavor in China. While websites similar to Match.com and Classmates.com have been around in China for years, there are still no dominant social networking websites in China. Both Twitter and Facebook are still blocked or function intermittently in China. I am also having trouble using my Google Reader here. Blogs and discussion boards are popular in China, however. Their topics range widely from daily living to making money in the stock market to social issues. Another unique phenomenon is social networks formed around games. There are a few popular gaming websites, and many consumers avidly participate in such communities.

Mobile Advertising Adoption Ahead of the US

Mobile advertising is a daily phenomenon in China. Most mobile users receive tons of promotional text messages on their cellphone. These messages are typically free to the receivers. But because of the sheer volume, many consumers ignore these messages by either not opening them or deleting them right away. So the effectiveness of such mobile ads is unknown. Internet access on the mobile phone is also commonplace in China, but usually at 2G speed. This is about to change, however, as the technology gets updated.

All in all, I am quite amazed by how far China has come along in just a few years. No wonder my mom, who visited me in the US last year, called me poor.

When we talk about social networking or contagion effect, we are usually referring to getting good words out about us so that we can engender good will and gain additional customers. In other words, we often focus on positive behavior in the context of social networks. But just as positive behavior can be fostered through social networks, quitting behavior can be social too. When consumers decide to leave a company, even when no particularly negative word-of-mouth is present, that decision can still have a social rippling effect. Consider my recent quitting of Facebook, for instance. That decision was bolstered by seeing 36000+ consumers who also signed up to quit on QuitFacebookDay.com.

Image by Loui Loui from Flickr | CC 2.0

To help understand how this social quitting behavior works, I would like to discuss the findings from a rare academic study on this subject. Published in the Marketing Science Institute’s 2010 Working Paper Series, Irit Nitzan and Barak Libai from Tel Aviv University studied the effect of defection by friends on our own decisions to quit a company. If you are interested in the full report, you can purchase it directly from MSI.

Context

The study is based on the behavior of 853,643 customers of a major cellphone service provider in a Mediterranean country. The communication records and defection behavior of these consumers over the course of one year were examined. Social networks were constructed from the consumers’ call and text messaging records.

Main Findings

• Quitting definitely has a social effect. Having an additional defecting friend increases one’s probability of leaving the same company by as much as 80%.
• This social effect is the strongest right after the friend quits, and dissipates rather rapidly as time passes.
• The stronger the social relationship one has with the quitting friend and the more similar one is to the friend, the stronger the social impact of quitting.
• Heavy users and loyal customers who have been with the company for a long time and heavy users are more immune to the social effect of quitting from defecting friends.

What Does All This Mean to Practice?

• Be proactive when a customer quits. If you have access to the customer’s social network (e.g., through online social networks such as Facebook), engage in preventive measures with the customer’s friends, such as sending an appreciation message to the friends, offering a special promotion, or obtaining feedback to address potential issues.
• Try to respond fast, preferably within the first month, as the social effect of quitting is the strongest at the beginning.
• Fostering customer loyalty does pay off. Loyal customers are much more resistance to forces that may lure them away from your company. This has been found to be the case from not only this study but also other academic studies as well.

Reference:
Irit Nitzan and Barak Libai (2010). Social Effects on Customer Retention Marketing Science Institute Working Paper Series 2010 Report No. 10-107

Last week, I used my unpleasant mortgage application experience with Quicken Loans to demonstrate the danger of force locking in consumers instead of fostering loyalty. Since then, I have received some interesting communication from Quicken Loans. As a consumer, I emerged from the entire experience feeling OK again about Quicken Loans as a lender. While Quicken Loans had lost us as a customer for this mortgage because we already chose another lender, it successfully averted future negative word-of-mouth and ill will against the company. I detail my experience in this post as a case study of how companies can use social media to discover and address service failures and customer dissatisfaction.

Chronology
June 29 My unpleasant phone conversation with a Quicken Loans customer service representative
June 30 My blog on the experience as well as negative review on Epinions.com (note: consumers act fast when they feel unhappy)
July 1 Kelly at QuickenLoans commented on my Epinions.com review, offering to look into the problem and requesting more information from me
July 2 I emailed Kelly with full details of the incident
July 6 (after Independence Day Holiday weekend) I received a call as well as an email from Scott King, Lead Client Advocate at Quicken Loans. He had listened to my original conversation with their customer representative and read my blog. In the phone call and email, he apologized for our unpleasant experience and offered to introduce us to one of their best mortgage banker for a second chance.

The Response
You can read Kelly’s original comment on Epinions.com. With Scott’s permission, I am publishing his email response below:

Good afternoon Mrs. Liu-Thompkins,

Thank you for taking the time to provide these additional details regarding your experience with one of our mortgage bankers. We find this feedback valuable, and appreciate the time you spent in sharing.

The experience that you have had with (name removed) is unique, and unacceptable . I apologize for the way you were treated and the lack of service you were provided. I listened to your conversation with Mr. (name removed) and do find this to be a valuable coaching opportunity. This has been brought to the attention of his director to be addressed internally.

I read your blog, and you hit the nail on the head. I felt that all of your points were valid and true, however do regret that Quicken Loans had to be the example used. It was fitting, but unfortunate.

I take pride in this firm, and the service that we provide each and every day. If willing, I would love to have the opportunity to refer you to one of our best mortgage bankers. I trust that our process and products are among the best in the industry, as well as many team members that I am very confident could give you a fantastic mortgage experience.

I will not have any further contacts go out to you unless you wish to revisit. We would love a second chance.

Best Regards,

Scott King
Quicken Loans
Lead Client Advocate

Take Aways

There are a few important lessons to be learned from this incident in terms of managing customer loyalty.

• Do listen. Consumers talk about their negative experiences online. While the ripple effect through online social networks can be bad, the silver lining here is that these conversations also reveal failures and dissatisfaction that used to be hidden in private offline communication. Therefore, if a company is willing to listen, more likely than not, problems can be discovered and mistakes can be corrected.
• Every apple counts. Every interaction a consumer has with a company, whether it’s the operator, the customer service representative, or the salesperson, is an opportunity to enhance or destroy customer loyalty. It is not an exaggeration to say that building customer loyalty is a company-wide effort. While Quicken Loans have received high recommendation rate according to its website, it was the one bad apple in its customer service team that could have created long-lasting negative impact. Therefore, social media listening and recovery efforts aside, a fundamental strategy is to teach every employee to be on board with building customer loyalty. The company culture should be a loyalty culture.
• Be fair. One thing I really liked about Scott’s response is that he actually listened to the original phone conversation I had with their service employee to get the full facts. Although many say customer is the god, I believe in being fair as well. The fact that Quicken Loans did not rely on one-sided argument to punish its employee signals respect to me. I would recommend the same practice to other companies. Without being fair, your employee morale will be damaged, which can eventually affect your customer loyalty.
• Do the homework. Before addressing a customer request, it is important to actually read through the message for all details. Nothing is more disheartening than sending a company a customer service request and getting back a standard template response that obviously had little to do with your request. I understand how those sem-machine generated responses may save costs. But if customer loyalty is your goal, these are areas where corners cannot be cut. In this incident, Scott actually read what I wrote in my blog, which shows me that he has done his homework before getting in touch with me. This is what I call relationship building practice.

In the end, an important thing to remember is that we all make mistakes, but it is how we respond to mistakes that reveal who we are.

Recently, while trying to obtain a mortgage, I spoke with a Quicken Loans customer service representative named Jorge (I omitted the last name here to save him some dignity). On the phone, I told him that we have not decided on a lender and that we wanted to get an idea of what Quicken Loans had to offer. Our intention was to shop around for the best deal AND service. Apparently, the fact that we are smart shoppers did not rest well with Mr. Jorge. He immediately asked us for a commitment that we are going to work with Quicken Loans if he were to spend any time working with us. When I told him that we cannot make such a commitment at this time, he refused to work with us. Needless to say, I finished my conversation with him quickly and crossed out Quicken Loans as a candidate lender.

What Mr. Jorge is trying to do is not uncommon in the business world — he is trying to lock in customers (or in my case, potential customers). Wireless companies do the same thing, by locking up our phones so that they can only be used with a specific provider. This attempt at locking in customers is not without a good reason. After all, today’s consumers are very fickle. Combined with the wealth of information we can find online and through social networks, we are given the power to choose the best service at the best price. So naturally companies want to create some kind of switching barrier so that we won’t go somewhere else.

Image by mskogly | CC 2.0

The question is how effective such a switching barrier really is. The answer is: not very effective at all. Consumer researchers have repeatedly demonstrated that trying to control consumers’ decisions and behavior can elicit strong consumer reactance. The result is disgruntled customers, negative word-of-mouth, and in the long run low retention rates.

I am not suggesting that switching barrier is bad. Switching barrier is actually necessary. But the key differentiating point between an effective switching barrier and an ineffective one is why it stops consumers from switching. It is the difference between “having to” and “wanting to”. In other words, you want your customers not wanting to go anywhere else, at their own free will, rather than putting shackles around them so that they cannot go anywhere else. The latter strategy is not a loyalty strategy, and it will not lead to customer loyalty.

I end this post with a sample list of effective vs. ineffective switching barriers when marketing to consumers, so that you can see for yourself what really fosters loyalty in the long run.

Effective Switching Barriers:
- Emotional connection with the brand (e.g., Harley Davidson)
- Great customer service (e.g., Lands’ End)
- A sincere and ethical way of doing business (e.g., Zappos)
- A deeper understanding of customers based on effective analytics (e.g., Harrah’s)
- Special status and treatments (e.g., American Express)
- A fun culture that people want to be associated with (e.g., ING Direct)

Ineffective Switching Barriers:
- Purely technology-based lock-ins (may work for a while but not for the long run)
- Purely point-based loyalty programs that lack soft benefits and savvy analytics
- Frequent coupons
- Imposed contracts
- Regulations (e.g., the utility industry)

Just like love, loyalty is voluntary and cannot be forced. Only when consumers can say they love you out of their own volition will you have reached the nirvana of customer loyalty.

If you are in charge of designing or revamping a loyalty program, it can be useful to seek inspiration from others companies’ programs. Recently, Colloquy, a LoyaltyOne company, released a LoyaltyScan database that can make this research much easier. The database contains information about the background and program design for 500+ loyalty programs around the world, and includes details such as program launch date, point earning mechanism, hard and soft benefits offered, member communication, data collection, and total enrollment.

To illustrate the use of the LoyaltyScan database, I pulled together a selected list of loyalty programs from the retail sector and compared their designs below:

Caveats

• There is no clear indication from Colloquy on whether this database will be updated frequently. So if be sure to verify data accuracy down the road.
• Not all data are available for all programs.

Despite these caveats, LoyaltyScan can be a valuable resource to check as you define your own loyalty program parameters.

Image by wwworks | CC 2.0

The 2010 FIFA World Cup kicked off on June 11. While total viewership is still unknown at this point, Nielsen has reported an 80% audience gain for ESPN and ABC during their weekend coverage of the event. For past World Cups, FIFA reports a worldwide audience of 26.29 billion in 2006 and 26.4 billion in 2002. If these statistics are not convincing enough, I give you my dad as another example. He would stay up late or get up in the middle of the night to watch a match, and he has been doing so for as long as I could remember.

Undoubtedly, the FIFA World Cup and soccer in general claim one of the biggest fan bases around the world, and many people feel fiercely loyal toward the sport and toward their team (think fans’ riots after losing a game). Wouldn’t it be great if your company can have the same level of loyalty among your customers? While whether an average consumer’s loyalty toward a brand can reach the level of loyalty toward a sports team is open to debate, there are at least valuable loyalty lessons that can be learned from how people associate themselves with sports and sports teams. Here I would like to talk about two main takeaways.

Excitement and Passion

Soccer fans are passionate about the sport. Why? It is exciting! When you watch a soccer game (or any sports for that matter), you don’t know who is going to win, you are carried away by moment-to-moment excitement, and you get a rush from capturing a glimpse of an incredible move by a player that may be talked about for decades afterwards. It may be hard to imagine the same kind of passion and excitement in your products. For example, most people are not going to feel really excited about a tube of toothpaste. But that does not mean you cannot bring excitement and passion into your customer relationship. There are three ways about it:

1. If your product category has excitement potential, you can try to build excitement about the category itself. Examples of this include fashion, automobiles, and entertainment.
2. If your product category is not that exciting (e.g., if you are unfortunately stuck with marketing a toothpaste), you can still build excitement around your brand name. In this case, brand image is the surrogate of an exciting team. To do so, your company’s culture needs to have a touch of excitement built in, and your communication strategies should coherently convey a sense of excitement. This would include your advertising messages, your sponsored events, your online social networks, etc.
3. Sometimes it is also possible to build passion about a lifestyle and then tag the brand name alongside it. This is different from category-level excitement in that it is not about a single product category but about a unique way of lifestyle that may span across multiple product categories. For instance, consider the extreme sports lifestyle. It has a unique target audience and it spans across fashion, sports, and other industries. It is a way of life that people feel passionate about. If your brand happens to be in such areas, you can benefit from the excitement and passion that are associated with this lifestyle.

Build Connection (in Different Ways)

Except for the most generous donors, I bet most sports teams or players do not know the names and faces of their biggest fans. But this does not deter those fans from feeling a strong connection with and loyalty toward their teams. Why? Sports build connections for individuals, in many different ways:

• Connection with other fans: Human beings are social animals. When people come together to cheer for something or feel sad about something, that is a very powerful emotional connection. In football, a well-known pre-game entertainment is tailgating. While on surface it may be about drinking beers and having fun. It also symbolizes people’s belonging to a community of others with similar passions. When your brand can facilitate this type of belongingness and satisfy people’s social connection needs, you will benefit from a stronger emotional connection with your customers.
• Connection with star players: Some people follow a sports team because it has their favorite player in it. As proof of this, when a star player switches teams, the player often brings with him a group of loyal fans to the new team. For a brand, the same kind of star power can be associated. But using a celebrity spokesperson that originally had nothing to do with the brand is not necessarily the best approach. At the end of the day, that person can take your loyalty audience to a competing brand easily. Ideally, this star player for your brand should be “homegrown” so that there is a natural association between your brand and the star, which will work much stronger than an imposed celebrity tie. In this regard, your employees matter A LOT. Even if a consumer knows no one at your company but that one warm and funny customer service representative, you will already have built some emotional connection with the consumer.
• Connection with locales: Many people follow the team of their local city or state or university. This intimacy by geographic connection is what keeps local communities alive. While some may argue that the Internet and online social networks have weakened local communities, I actually think the opposite is true with marketing. There is a cultural trend against big brands and national chains. Instead, consumers are flocking to local businesses that are right around the corner. For smaller local businesses, this is good news, and they should build on this local sentiment. For national brands, not all hopes are lost in this area. Local connections can still be built with sponsorship of local events or in the form of hybrid national/local campaigns such as the Pepsi Refresh Project.

Whichever way you build your connection with customers, do try to discover multiple ways of doing that. Similar to human relationships, where people who interact in multiple contexts (e.g., co-workers and gym buddies) tend to share stronger relationships, more ways to give your customers a sense of connection will also result in a deeper and more meaningful relationship.

The idea of 26+ billion people watching the same event is exciting and truly inspiring. This should be the standard that companies set their eyes to as well. With the right (and sincere) strategies, businesses can get to a higher level of connection with their customers and in turn will enjoy the benefit of more loyal customers.

Customer satisfaction survey is a big part of many companies’ operations. But do you know that as many as half of the so-called satisfied customers are still prone to switch? With lots of businesses attempt to improve their customer service, customer satisfaction is no longer a sufficient edge in today’s hyper-competitive marketplace. One company stands out from the crowd, however, by pursuing a happiness philosophy rather than mere satisfaction. The company is Zappos, the largest online footwear retailer. Monday marks the “official” launch of a book by the company’s CEO Tony Hsieh titled “Delivery Happiness”. As a blogger, I received a few advance copies of the book a few weeks ago, with the expectation that I would write an honest review of the book. So here are my thoughts from reading the book.

What Is It About?

I consider this book a half-autobiography of Tony Hsieh and a half-biography of the teenage Zappos. It spans from Tony’s childhood all the way to when Amazon.com acquired Zappos as its wholly-owned subsidiary. The book is sectioned into three parts:

• Profit, which focuses mostly on Tony’s pre-Zappos time, including his experience with LinkExchange, a company he co-founded soon after graduating from college and eventually sold to Micosoft for $265 million in 1998.
• Profit and Passion, which is what I call the Zappos era. It tells the experience of Tony investing in Zappos at the beginning with his venture fund to eventually joining the company as its CEO. It went through the struggles of Zappos as a young e-commerce company and the process by which the famous Zappos culture came into being.
• Profit, Passion, and Purpose, which covers the Amazon.com acquisition and a final chapter on how your company can establish a happiness culture.

What I Got out of the Book

OK, enough about what the book is about. What did I exactly get out of the book? I would say out of the three sections, I learned the most from the second part. I will summarize my reaction in two sentences: “Oh, Zappos was not an overnight success as I thought.” and “Customer loyalty is not just about customers.”

Interestingly, before reading the book, I had discussed the Zappos.com case study in my MBA class. From the case study, it seemed like Zappos was an overnight success from zero sales growing to over $1 billion+ in no time. But now reading the background story of how the company got here, it was way harder than I had imagined. The company’s business model morphed from the original drop shipping idea to eventually completely warehousing their own inventory. The focus on customer service also did not start right at the beginning. It was part by force (for financial reasons) and part by choice that Zappos eventually became a strongly customer-focused company. There is an important message in this for all start-up companies: Don’t worry about getting everything right at the beginning; it’s the small steps that you take along the way that count. Of course, it is important to choose the right area (or the right table in Tony’s poker term) to do business in. But if you are already sitting at the right table, the rest is about playing each hand consistently and trying to learn with each success and mistake. If you cherish the individual steps and learn along the way, more likely than not, you will come out ahead.

“The brand is just a lagging indicator of a company’s culture.” — Delivery Happiness

The point that strikes me the most throughout the book, however, is that happiness (and loyalty) is not just about a particular group or type of people but about an entire ecosystem. For Zappos, that involved at least the employees, the customers, the vendors, and the investors. This is not so hard to understand. If everyone around you is suffering or unhappy, unless you are incredibly out of touch, you probably will find it hard to stay happy. I once heard that the friends of happy people also tend to be happier. Translating this to the business environment, your customers are much more likely to be happy if your company is a happy company. How do you become a happy company? By hiring happy employees and keeping them happy, by treating your suppliers and vendors in such a way that they will be happy to do business with you, and probably not as obvious, by yourself being happy. When you have created this ecosystem of happpiness, having loyal and happy customers will only be a natural byproduct. An MBA from a top b-school may give you an edge in knowledge. But eventually it is the simple principle of doing the right thing that really matters.

What Do I Think of the Book?

This book was not as enlightening as I had expected it to be, probably because I already pursue a happiness philosophy in my own life. But for those who have been struggling in the corporate world and are wondering why you do what you do everyday, it is a good wake-up call that you may be sitting at the wrong table and setting your eyes on the wrong thing. And if you are struggling with unhappy and disloyal customers, rather than merely addressing the symptoms, the journey really needs to start from within, within yourself and within your company. Only then, a true purpose can be discovered about your own life and your company, and everything else will fall into place.

You Want to Read the Book?

When I received my advance copy of the book, the publisher also gave me three extra copies for me to give away to my readers. So if you are interested in reading the book, please fill out my contact form. In your request, please briefly describe one small change that you can make to get yourself or your company happier. The first three readers to do so will receive a free copy of the book.

Here is to happiness!

This month marks my first Facebook-less month. Like more than 35,000 other users who have signed up to do so, I closed my Facebook account on May 31. For someone like me who rarely participates in movements of any kind, Facebook has elicited in me an usually intense negative feeling. This has not always been the case, however. I had started as an early adopter of Facebook, partially due to the privilege of having a .edu email address as a university professor. In those early days, I was an avid advocator of Facebook and marveled at the revolution it would bring to the social landscape. What happened then? In a few years, I had turned from a Facebook lover to a Facebook hater. Reflecting on my own journey, I realized that there are important loyalty lessons here for businesses to learn.

Don’t Forget Your Roots

Like many media companies, one unique aspect of the Facebook business model is that the end users of Facebook are not the same people who pay the bills for Facebook. Facebook started as a social network intended to connect people and eventually grew into a business model deriving revenues from advertisers. Nobody blames Facebook for wanting to make money. After all, it is a business and it has to make money to survive. What Facebook did wrong, however, was to make every business decision based on money AND at the cost of its roots, the millions of end users. While the recent privacy issue was the final straw that made me quit the website, my dissatisfaction had started a while back from the multiple incidences of Facebook interface redesign. To me, none of the changes really enhanced user experience (although they may be claimed so), but was rather an effort to force users to go through more pages in order to maximize advertising space. That to me was the fundamentally wrong decision. By Metcalfe’s Law, Facebook would have had no value whatsoever if it were not for all of its users. Even though these users do not bring direct revenues, they represent the very foundation that Facebook is built on. When Facebook ignored these users to pursue money, it had in many ways destructed its roots. The consequence of that will show one day. Just look at the newspaper industry crisis. Losing advertisers was the direct but not the fundamental causes of the crisis. Instead, it was the fact that a lot of people stopped reading newspapers.

Simply Listening is Not Enough

Over the course of building one of the largest communities online, Facebook had made an effort at listening to its users, as demonstrated by the various forums/groups that it had devoted to Facebook-related issues. As I perused these spaces, however, it dawned on me that these places were more like a venting place without Facebook making a serious effort at trying to resolve the problems. Two cases in point. When Facebook pondered the change in its privacy policy a while back, it had posted the policy draft on its community page and asked users to comment. The comments were overwhelmingly negative. But that did not make any difference to Facebook. It went ahead with its policy change any way. Another case in point, when Facebook repeatedly changed its user interface, users had organized groups to persuade Facebook to go back to the more user-friendly old interface. That also fell on deaf ears. The lesson here? Just listening in on consumer conversation is not enough. If you participate in the social media space without an open mind to change based on what you hear, you would have not only become a hypocrite, but you would also be giving up a gold mine that may one day save or change your company’s future.

Your Customers = Your Image

My dissatisfaction with Facebook’s ignoring end users got exacerbated when my news feed on the website became jammed by endless updates from Farmville, Aquarium, and the like. A friend of mine once commented about this in his status update that would always remain my favorite: if everybody had spent the time they used to play Farmville on actual farming, we would have been able to feed the whole Africa. Many people I talked to felt the same annoyance about the endless game updates. We had originally signed on to develop or enhance meaningful relationships, but now we started to question whether we have too many idle friends who have nothing better to do everyday. It felt like you got together for dinner and catch-up with friends, but all you and your friends did was watching TV while eating dinner. In short, Facebook had stopped being a cool and meaningful place, but had become a big kindergarten of adults. The truth is that people do judge your brand by who your customers are and what they do. Oftentimes, a brand becomes suddenly cool and fashionable because it was chosen by what we considered as cool people. By the same token, when a business tries to pursue a larger market that is never truly compatible with its brand image, consumers will also start to think differently about the brand. While many brands had succeeded in completely transforming their brand image by pursuing alternative target markets, there are more brands whose initially strong brand image became diluted by inappropriate choice of target markets. So be selective about whom you go after.

Not All Apologies Are Accepted

Less than two weeks before my scheduled Facebook quitting day, Mark Zuckerberg acknowledged in an email that they had “made a bunch of mistakes”. This was followed by a more formal press conference on the changes Facebook would make to address its privacy controversy. Although by then I had been pretty resolute about quitting, I was willing to listen to what they had to say, with the faint hope that perhaps they would relent and that I could restore my confidence in them. But I was disappointed. The apologies had not come across sounding like a sincere apology, and the changes promised did not address fundamental issues with its privacy policy. The event came across as a half-hearted PR patch rather than genuine regret and apology. From past history, if a business has made a mistake and apologizes appropriately, consumers are often willing to forgive. But not all apologies are necessarily accepted. In Facebook’s case, it violated three basic principles of a good apology: (1) it was not timely; (2) it was not sincere; and (3) it didn’t even tell the complete truth. With such a half-hearted apology, the situation only became more hopeless, and the true nature of the business only became more naked in the public eyes.

In summarizing these lessons, I hope that your business will not make the same mistakes as Facebook. Otherwise, even if you had started with a solid loyal customer following, you may wake up one day finding them gone.

Recently I was interviewed by Sarah McConnell, host of the With Good Reason radio program. In the short segment, I discussed the growing popularity of social media in business use and offered my advice on small businesses entering this area. For those of you who missed the program or live outside of the Virginia and DC area where the program was broadcasted, here is an online recording of the program. In the second half of the program, Professor Alan Abrahams from Virginia Tech also offered his advice on the steps small businesses should take to establish an online order business.

Listen to the program:

College students, like other young consumers, are notoriously fickle and may not exactly seem like an ideal candidate for loyalty marketing. But there are at least two things that make college students hard to ignore for many businesses. First, college kids are usually at the cutting edge of technology and fashion trends. After all, two of the major online players today, Google and Facebook, had sprung from university campuses. This makes college students important trendsetters to watch. Second, although college kids may not be rich today and some may even have concerns paying for their education, they do tend to spend more (a good 40%) on discretionary items such as fashion and entertainment. They are also well on their way to joining the educated professional workforce in a few years. So for some businesses, college students represent valuable customers right now, and for many others, these students are potentially valuable customers in the near future.

Because of this, it is important for loyalty marketers to get into the mind of college students. Recently, I conducted a brief survey of 184 college students. Similar to an earlier study I did on adult consumers, the purpose of this survey was to understand college students’ online social activities and their consumption and sharing of online content. Some findings from this survey were expected, while a few surprising facts also emerged. Here are some highlights.

Facebook still rules, but what is Linkedin?

On average, the students participated in slightly more than two online social networks. Echoing other research that shows continued dominance of Facebook among college students, my survey also revealed nearly 9 out of 10 (88.6%) students belonged to the Facebook community. The other top ones were YouTube, MySpace, Twitter, and Yahoo! Groups. The chart below compares social network membership between college students and the non-student sample from the earlier survey. It is apparent that while MySpace and Twitter were among the top five online social networks, students’ participation was lower than that of the non-student sample. Furthermore, only 6 students belonged to Linkedin. Perhaps these students have not quite reached the time to realize the utility of Linkedin in developing relationships for their future career.

We like videos, and they like blogs

The college students in my survey showed clear enthusiasm toward online videos. More than half (54.3%) actively participated in YouTube, a leading online community for consuming and sharing user-generated as well as professional videos. What’s more, when asked the types of content they contribute to the Internet, students trailed behind the non-student group on blog posting, product reviews, and discussion board contribution. But they led by a wide margin on video contribution activities, with 54.9% having posted at least one video online, vs. 39.7% for the non-student group. Clearly, videos are a great way to reach these young consumers.

Make me laugh please

In my previous survey with the non-student sample, I was surprised that the top reason for passing along content online was relevance to those sharing information with, and humor only occupied a secondary role. With college students, these two factors switched their positions. Being funny took the front seat, while relevance to others was the second most popular reason. The other top reasons were: importance of the information, uniqueness of the content, and controversial content.

Family is important

This is the most surprising finding to me in the entire survey, perhaps partially because of my still somewhat etic view of the individualistic American culture and the stereotype of rebellious college students against older generations. In the survey, I asked the students who they usually share online information with, a full one third of the students listed their parents or siblings as the audience. Of course, friends were still the dominant group for sharing (listed by 83% of the students), but parents and siblings were the next most significant groups for information sharing. Compared with the non-student group, the student participants were more reluctant to click on shared information, and most of them listed the trust in and respect for the sharing source as well as the source’s track record for sharing interesting information as the reasons for them to click on shared information.

I’d love to hear what you think of these findings. If you have any questions or are interested in learning more about this and the earlier survey, please feel free to post a comment here or contact me.

I created this series to help brand community managers to identify and focus their efforts based on the types of participants in their communities. In this last part of the series, I would like to offer some suggestions on what to do with each of the four segments (insiders, minglers, devotees, and tourists) once you have identified them.

http://www.flickr.com/photos/santarosa/ | CC BY 2.0

Most likely, you will find all four types of participants in your community. However, depending on the developmental stage and the health of your community, the percentage of participants that fall into each segment may vary. The table below lists the suggested goals and engagement strategies for each of the segments. If your resource is limited, I suggest you go with the insiders first, as these participants are great partners and can turn your army of one into thousands at a low cost.

	Think of them as...	Goals	Engagement Strategies
The Insiders	Partners and owners of the community	Increase sense of ownership Develop them into compass for community and brand growth	Face-to-face or virtual invitation-only events for these community influencers at regular intervals; Consult them on important changes with the brand and the community (e.g., before a new community policy is put in place.) Involve them in community management, possibly through assigning official roles; A reward system that recognizes the leadership position of these participants;
The Minglers	Messengers	Develop into inspirations for social activities Enhance loyalty toward the brand via social belonging in the community	Offer sneak previews to satisfy these minglers' desire to be on the cutting edge; Prime seed targets for viral messages and can also serve as early testers for marketing messages; Offer social functions and activities, possibly with these minglers as organizers. A reward system that allows these minglers to display their social prowess (e.g., a badge granted on surpassing a certain number of friends or followers).
The Devotees	Brand sounding boards	Increase participation Develop into compass for brand development	Invite to participate in brand development activities (surveys, collaborative design, etc.). Start brand knowledge themed discussion threads; Offer brand-related incentives to encourage participation; Consult them on important changes with the brand (e.g., before a new product feature is introduced.)
The Tourists	Real estate shopper	Unlike tourists in the real world who can function as the main income source for certain locales, these tourists cannot be the foundation of a community. However, they represent growth potential. The goal therefore is to draw out these tourists and attempt to convert them into more long-term residents.	Unless your community is relatively new, these tourists should be given lower priority than the other three segments. If resource is limited, focus on the other ones first. Make sure barrier is low for new visitors to participate in the community (e.g., no registration hurdle to read messages). A reward system that motivates sustained participation (e.g., point accumulation based on frequency of contribution, which can be redeemed for special badge or free products. Consider involving them in usability testing to ensure user-friendly interface.

I hope you enjoyed this series of discussion about brand community participants. Brand community is an important part of today’s marketing strategies. Managing it well, effectively, and efficiently will give your brand a marked edge over your competitors. Questions? Comments? Please feel free to leave a comment.

Last week, I wrote about four categories of brand community participants: the devotees, the tourists, the minglers, and the insiders. In Part 2 of this series, let me discuss how you can identify these different types of participants through their observable behavior in your community.

Image by Lieutenant Pol | CC 2.0

The Devotees:
The devotees are probably the most difficult to identify among the four categories, because these individuals are most likely lurkers that mostly keep it to themselves. But by combining community log data, it is still possible to recognizing such users. Signs of a devotees include:

• Moderate to frequent visit to the community.
• Rarely contributes to the conversation. If we were to calculate a ratio of posting to reading activities from the user’s activity log, the ratio should be quite low.
• For reading activities, the user reads mostly information/exchanges directly related to the brand. The average time spent on these brand-related messages is also disproportionately higher than non-brand-related messages.
• If a following or friending system exists in the community, a devotee is likely to have a small number of friends, and is likely to only follow well-respected members who know a lot about the brand.

The Tourists:
The most telltale sign of these users are their infrequent visits to the community. Other signs to look for:

• Very short membership history followed by inactivity or very sporadic usage.
• Average time spent on each message is short.
• No established friend or follower relationship within the community.

The Minglers:
Recall that these are social butterflies who are not that interested in the brand but very interested in social interactions. Their patterns of behavior will include:

• Moderate to high visit to the community.
• A large number of contributions, usually in response to other community members’ messages.
• Few and shallow reading activities characterized by relatively infrequent readings and small amount of time spent on each message.
• Reading activities do not exhibit a consistent relationship with the brand.
• Follow or befriend a large number of community participants, and usually are the ones who initiate such connections.

The Insiders:
These are true leaders of the community and tend to be highly visible. You can identify them by these traits:

• Frequent visit to the community.
• Activities consist of a large portion of reading as well as posting activities.
• Equally likely to initiate a conversation as to respond to others’ discussions.
• Due to their high visibility and central status, the messages insiders post are likely to be read widely and responded to frequently by other community participants.
• Show signs of ownership pride of the community, such as attempts to police the community, or commemoration of significant community events and dates.
• Have a large number of followers or friends, and equally likely to befriend others as being friended by others.

So putting all of the above together, here are a few metrics you should monitor to identify your community participant segments:

• Length of community membership;
• Frequency of log-in;
• Posting to reading activities ratio;
• Topic content of posting and reading activities;
• Ratio of conversation initiation to conversation response;
• Number of friends and followers;
• Direction of friendship (following vs. followed and friend vs. befriended).

By frequently examining these metrics, all of which can be fairly easily extracted from community records, you can quickly see the segments in your brand community as well as any shifts between segments that you should promote (e.g., from a mingler to an insider) or prevent (e.g., from a devotee to a tourist). These can also function as health barometers of your brand community. Of course, these simple metrics will not replace closer analysis of your community, but they can function as quick pulses that give early warning signals or gauge positive responses.

Now that you can find who belong to each of the four segments in your brand community, the next step is to design the appropriate target strategy for each segment. I will go over this in the third and last part of this series next week. So stay tuned…

If you have any thoughts about this, I would love to hear from you. Please feel free to leave a comment below.