Loyalty Marketing in Times of Economic Distress

I’m a really lousy poker player for one simple reason: I can’t divest myself emotionally from an economic downturn. All poker players go on bad runs. Pocket aces get cracked on the river. Nut flushes go down in flames because some maniac who never folds fills up his sixes-over-queens boat on the turn.

When this happens to me, and my $100 buy-in shrinks like George Costanza’s post-swim package, I can’t escape the burning sense of humiliation. I’m too emotionally invested in the size of my stack to focus on playing each hand correctly as it comes. As a result, I end up in a death spiral of weak-tight play—I don’t play many hands, and the hands I do play, I play poorly.

Poker metaphors are nearly as hackneyed as baseball metaphors, but let’s run with it anyway. The U.S. economy is certainly on a bad run of cards. We’ve all seen the self-fulfilling prophecies on television and the inter-tubes. Retail sales tumbled again in February. The only bright spot is Wal-Mart, the surprising resilience of which suggests that there is no bottom to the appetite of American consumers for cheap crap made in China. Garbage bins full of rotting sub-prime mortgages are stinking up the offices of lenders around the country. The job market is tanking. Gas will cost $4 a gallon this summer and $6 a gallon next summer. In this environment, we can all be forgiven for fearing that we’ll soon be living in our SUVs instead of driving them.

Marketers attempting to operate in such a grim economic environment naturally fall into weak-tight play. Recently, I spoke to a retailer who had developed a dynamic plan to phase out weekly sales and generic coupon mailers in favor of more targeted, relationship-building efforts. Thanks to this latest spasm of media-fueled gloom, those plans are now on hold. The retailer’s executive team feared giving up the one promotion they new would bring customers in—the weekly sale.

Any good poker player will tell you that this is precisely the wrong play. When an opponent raises you, he’s essentially calling you a wimp. The proper response is not to merely call his raise; that’s weak play. The proper play is either to admit you are beat and fold, or to defend your hand with a re-raise. In this retailer’s case, they’re reacting emotionally to the prospect of a recession, when they should be reacting logically.

Sales declines during a recession will certainly result in budget cuts, and marketing sometimes must bear more than its fair share. Such belt-tightening should find you re-raising a downturn by shifting your marketing spend to initiatives that identify best customers, collect actionable intelligence on them and then leverage that data to influence profitable customer choices. Don’t spend your finite resources further training your customers to wait you out for the next sale. Instead, focus your efforts on marketing to the two core groups of customers who can most directly influence revenue:

High-value customers you want to retain. Give them offers to keep them spending at their current level. For these loyal customers, tilt the hard-soft benefit equation toward the soft side with special benefits and access unavailable to the general population.

High-potential customers you want to grow. Give them offers to shop more often and spend more during each visit. Use targeted discounts and bonuses through your loyalty program or store card and monitor their transactions.

According to a quarterly CEO survey conducted by Vantage Research, most CEOs surveyed understand that, even during tough times, cost doesn’t drive customer loyalty. To attract and retain customers, these CEOs “won’t slash prices, but will [instead] increase service/product quality and personal customer experiences instead.”

That’s smart, aggressive play that will help these executives through the bad times. Just as good poker players ignore the bad swings, learn to divorce your emotions from your marketing efforts. Weak-tight players lose. Tight-aggressive players win.

Rick Ferguson is the editorial director of COLLOQUY. He can be reached a [email protected].