Cornell and SAS Webcast Focuses on Maximum Customer Value
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Cornell and SAS Webcast Focuses on Maximum Customer Value
Webcast explains how to get the most from customer loyalty programs
Ithaca, NY, December 10, 2009 – By focusing on the value of each customer, hospitality operators can use their loyalty programs to improve customer retention and build future profits. Without that kind of analysis, companies will not really be able to determine whether their loyalty programs are working.
A new webcast, produced jointly by the Cornell Center for Hospitality Research and SAS, the well known business analytics firm, explains the key factors in customer loyalty programs and customer value.
The webcast featured an analysis of customer loyalty programs by Michael McCall, CHR research fellow, and an explanation of the factors involved in calculating lifetime customer value by David Ogden, principal analytics consultant, SAS. McCall's analysis focused on ways to determine the effectiveness of a loyalty program. Overall, he has found a lack of strategic and measurable results from these programs.
In particular, McCall pointed to the critical matter of price sensitivity. He explained that an effective loyalty program should decrease participants' price sensitivity, but too many programs focus on discounts or other price-related concessions. That has the opposite of the desired effect, because it directs customers' attention toward pricing. He suggested that loyalty programs instead focus on ways to give special treatment to top customers.
Looking at loyalty program participants, McCall found one distinct group of customers who are responsible for most of a company's profits. These are the customers who should be given elite status. "The highly valuable segment was responsible for most spending, but they were usually grouped with less-valuable customers in the top tier of many programs," he explained. "This argues for an 'ultra tier,' for those customers who are truly worth the most to your company." He added that such a top tier gives companies a chance to give their best customers exclusive treatment.
McCall offered the following six principles for loyalty program design. (1) Avoid provoking customers' price sensitivity, and be careful about "cash back" or discounts. (2) Manage program tiers carefully, because it's easy to give rewards (when someone goes up a tier), but painful to take them away (when someone drops down to a lower tier). (3) Think carefully about customer values. (4) Reward customer engagement. (5) Separate true effects of a loyalty program from artifacts by choosing appropriate data. (6) Bridge the gap between academics (theory) and practice.
Picking up from McCall's analysis, Ogden explained the steps in calculating customer lifetime value. The key to this matter is to find the customers who will provide your company with the best future profits—not just revenue. Those valuable customers are the ones who should be in top loyalty program tiers, but Ogden noted that such programs are just one of several levers that can drive increased customer profitability. For the calculation of customer lifetime value, Ogden urged all businesses to refer to internet sites (such as sas.com). The calculation of lifetime customer value involves estimating margins, customer retention rates, and the present value of money.
Conceptually, however, the key elements of customer value are profitability and repeated patronage. Thus, Ogden explained that one key way to ensure future value is to find ways to retain customers. To underscore that point, he demonstrated the substantial value of even a one-point reduction in the customer defection rate.
The next webcast in the Cornell and SAS series is scheduled for February 12, 2010. This webcast, "Planning for the Recovery: Pricing and Investment Strategies," will present two Cornell faculty members, Bill Carroll and Jan deRoos; Ravi Mehotra, of IdeaS; and Philip Schaetz, Vice President for Revenue Management at Hyatt. They will examine strategies for coming out of the recession better and stronger than before. The webcast will cover investment strategies, pricing strategies, and up-to-the-moment economic trends.
SAS is the leader in business analytics software and services, and the largest independent vendor in the business intelligence market. Through innovative solutions delivered within an integrated framework, SAS helps customers at more than 45,000 global sites improve performance and deliver value by making better decisions faster. Since 1976 SAS has been giving customers around the world THE POWER TO KNOW®.
About The Center for Hospitality Research
A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the center's 78 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The center also publishes the award-winning hospitality journal, the Cornell Hospitality Quarterly. To learn more about the center and its projects, visit www.chr.cornell.edu.
Center Senior Partners: American Airlines Admirals Club, job.travel, McDonald's USA, Philips Hospitality, Southern Wine and Spirits of America, Inc., Taj Hotels Resorts and Palaces, and TIG Global
Center Partners: AIG Global Real Estate Investment, Davis & Gilbert LLP, Deloitte & Touche USA LLP, Denihan Hospitality Group, eCornell & Executive Education, Expedia, Inc., Forbes Travel Guide, Four Seasons Hotels and Resorts, Fox Rothschild LLP, French Quarter Holdings, Inc., FX Real Estate and Entertainment, Inc., HVS, InterContinental Hotels Group, Jumeirah Group, LRP Publications, Marriott International, Inc., Marsh's Hospitality Practice, PricewaterhouseCoopers, Proskauer Rose LLP, SAS, Smith Travel Research, SynXis (a Sabre Holdings Corporation), Thayer Lodging Group, Thompson Hotels, Travelport, WATG, and WhiteSand Consulting
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