This article was written by Bashara Hinnawi - Lisbon Challenge Program Director. Entrepreneur focused on optimization and simplification of business procedures and sales. Bashara founded Lean Sale Optimizer Suite, a complete solution that increases sales/profit within a retail store by boosting customer loyalty using technology for a more personalized experience.
Having an Israeli / Portuguese nationality, he relocated to Portugal from Israel, where he was the CEO of a successful wine import and retail business, being the first to import top quality Portuguese table wine to the Israeli market. He has vast experience in business development and customer loyalty solutions as well as programming and team management. Bashara focuses on the human factor that is often overlooked by companies while implementing customer loyalty and gamification tactics.
Customer Loyalty / Gamification - Two buzz words that are commonly used today.
Customer Loyalty
According to Forbes, the cost to acquire a new customer is far more expensive than to keep an existing customer - more than six times while others sources state an average of more than 10 times.
So which startup doesn´t want to increase customer loyalty?
Gamification
Gamification is the use of game thinking and mechanics in non-game contexts. The most common uses are to engage customers with the brand and increase sales.
All good, right?
Well, not exactly…
Little are aware of the dangers for using customer loyalty and gamification tactics.
In principle, most of the seemingly positive initiatives also have some negative side effects. Without taking them into account before implementing any customer loyalty or gamification program might prove to be disastrous for the company.
One of the most common mistakes that companies do while implementing such programs is due to the overlooking of the human factor.
How does the initiative make the ones that are not eligible to take advantage of the program?
Is that feeling dominant enough to make them drop out as a customer?
Will the end balance (positive results vs negative outcomes) lead to a sustainable increase in sales, profit, reputation, customer base, market positioning, etc.?
For startups the key word is sustainable increase.
Most common examples of gamification in companies are related to lead generation teams.
“One multinational company had a centralized lead generation team in one country providing support to several different countries. The management reviewed the number of leads generated and decided that they want to incentivize the teams with a cash bonus for each agent that makes an increase of 30% in the leads generated during Q4, when historical analysis shows that during Q4 leads reduce in 20%. So they created a leaderboard for best country and best agent per country.”
Hard results:
“Surprisingly one country had an increase of 40% and within the team of another country one agent had a 30% increase and the others an average decrease of 30%. “
Bottom line: Global average increase of 10% as opposed to the decrease of 20% is outstanding, right?
A deeper analysis showed that:
- The country that had a 40% increase, had an aggressive countrywide PR going on that the additional leads were organically pouring in, with no extra effort.
- The agent with the 30% increase, while his country colleagues had a 25% decrease eventually turned out that he was in need of that bonus badly that he invented new leads to achieve his target, that lead to his dismissal from the company.
- As for the rest of the team, they were so demotivated by the unfair chance of not being able to achieve such a target and this resulted in a decrease of performance during the 2 quarters that followed.
Most common customer loyalty initiatives are special discount for members.
“Suppose a shoe store with a customer loyalty program.
One day the manager realized that the stock levels are getting extremely high and he wanted to reduce the stock level. So he created a campaign with a promotion of 30% discount on all shoes (Members only).
So logically, that way they will be able to recruit more members and at the same time reduce the stock.
Sounds good, right?
Facts are:
- More than 90% of the visitors to the store are non-members.
- Most customers are fed up of membership programs with cards and registrations.
- Non-members that usually do purchase felt that they are being robbed charging them 30% more than the others and they left without a purchase and without registering.
- Members did buy 50% more than usual.
Overall bottom line:
- no increase in sales,
- no increase in revenue,
- less recurring non-members
The probability of things going wrong are extremely high, so before implementing such initiatives make sure that you have enough validated information to minimize these risks and remember that there is always the human factor.