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Do customer loyalty programs really help sellers make money?

A non-tiered customer loyalty program’s reduction in attrition accounts for more than 80% of the program’s total lift or success. On the other hand, increased frequency accounts for less than 20% of the program’s lift or effectiveness.

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Customer loyalty programs have been around for decades and are used to help businesses, marketers and sellers build a sustainable relationship with their customers. But do they work? A recent study sought to find out and researchers learned that while yes, customer loyalty programs do work, perhaps not in ways most may assume.

There are two basic types of customer loyalty programs, tiered and non-tiered. Airlines and hotels often use tiered customer loyalty programs that increase rewards as program members reach higher thresholds of spending over time. Retailers and service industry businesses are more likely to offer non-tiered customer loyalty programs, in which members are rewarded with frequent, but not increasing rewards, such as “buy 10 get one free.”

This research investigated if those non-tiered customer loyalty programs actually do what they are designed to do.

The study to be published in the June issue of the INFORMS journal Marketing Science, “Can Non-tiered Customer Loyalty Programs Be Profitable?”, is authored by Arun Gopalakrishnan of Rice University, Zhenling Jiang of the Wharton School of Business at the University of Pennsylvania, and Yulia Nevskaya and Raphael Thomadsen of the Olin Business School at Washington University in St. Louis.

The authors found that non-tiered customer loyalty programs increase customer value by almost 30% over a five-year time period. They discovered that the program’s effectiveness is not so much through increased spending per transaction or frequency of purchasing but rather through the reduction of attrition. In other words, the chief benefit is that the customer loyalty program reduces customer fall-off and turnover.

“We found that a non-tiered customer loyalty program’s reduction in attrition accounts for more than 80% of the program’s total lift or success,” said Thomadsen. “On the other hand, increased frequency accounts for less than 20% of the program’s lift or effectiveness.”

Jiang added, “One of the more interesting findings was that the impact of the loyalty program does not necessarily contribute to increased spending per transaction or increased frequency of transactions. Rather, the benefit to the business is creating more sustainable and lasting relationships with customers.”

To conduct their research, the authors worked with a company to collect data of more than 5,500 new customers who first started purchasing from that company in the same three-month period. This helped to ensure that the customers were comparable in terms of the amount of time they had to become acquainted with the selling firm. For the next 30 months, the researchers collected all subsequent transaction data from those consumers. During that period, a non-tiered customer loyalty program was introduced.

In the process, some of these new customers were automatically enrolled into the loyalty program. This helped researchers better gauge pre-program visit frequency and spending and then compare it to post-enrollment visit frequency and spending. “We were able to analyze the behaviors of consumers absent a customer loyalty program, and then after the rollout of the program,” said Nevskaya. “We evaluated frequency and actual spending amounts, and whether customers come back for repeat transactions.”

Gopalakrishnan summarized, “In the end, the primary value of a non-tiered customer loyalty program is not a means to increase frequency or spending. It’s a way to nurture a long-term and lasting relationship with the customer to reduce the defection of loyal customers over time. Non-tiered loyalty programs may provide psychological benefits that help cultivate such loyalty.”

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Giving project teams more autonomy boosts productivity and customer satisfaction

Organizations that take a hands-off approach to the structure and governance of project teams create an environment of creative flexibility. This built-in flexibility makes teams more responsive to needed changes in the software they’re building, boosting performance and customer satisfaction.

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Software development teams given the freedom to tackle their projects in whatever ways they choose are more productive and have more satisfied customers than teams that follow a central corporate standard, according to new research from The University of Texas at Austin.

The research suggests that organizations that take a hands-off approach to the structure and governance of project teams create an environment of creative flexibility. This built-in flexibility makes teams more responsive to needed changes in the software they’re building, boosting performance and customer satisfaction.

“By giving greater autonomy to your teams, you allow them to exercise greater judgment about what would actually work based on their project requirements,” said Indranil Bardhan, a professor of information, risk and operations management at UT Austin’s McCombs School of Business and co-author of the study. “We show there’s no one right way of achieving superior project performance, no one-size-fits-all.”

The findings appear in MIS Quarterly.

Bardhan and co-author Narayan Ramasubbu of the University of Pittsburgh tested the performance of both agile and traditional project teams over 50 months in a real-world policy experiment at a major software company based in India. The company had 125,000 software developers around the world working on projects that adhered to an ideal operations profile closely monitored through a central unit.

Senior company directors wanted to learn whether greater autonomy for software development teams would hurt or help performance. For the study, they implemented a policy change granting greater autonomy to certain teams and agreeing to provide data on key performance measures — for both autonomous and nonautonomous teams — before and after the policy change.

From 2013 to 2018, Bardhan and Ramasubbu tracked productivity and customer satisfaction on 461 projects. Managers on 146 projects were granted autonomy to design their projects the way they wanted using three main controls: location and time differences among team members, level of process diversity (such as lean or structured), and level of managerial control.

“Managers of autonomous teams could each choose what type of structure worked well for them and their project team, versus having something dictated to them by a central point of contact,” Bardhan said.

Software developers measure productivity in function points — a useful proxy for the software’s functionality. The more function points a product has, the more value it adds to the software. Value added increased 39% for teams that switched to an autonomous structure compared with projects that did not.

Customer satisfaction also increased. The agile teams’ ratings increased 2.95% as a result of the policy change, “which was pretty substantial,” Bardhan said.

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How GMO labels affect customer decision making with food purchases

This research reveals that GM labels add an important product feature for consumers to evaluate. The labels draw attention away from factors such as price, allowing firms to charge a premium for non-GM products.

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Photo by Markus Spiske from Unsplash.com

Researchers from Neoma Business School, Concordia University, and University of Wisconsin-Madison published a new paper in the Journal of Marketing that examines how the GMO labeling that policymakers implement affects consumer choice.

The study, forthcoming in the Journal of Marketing, is titled “GMO Labeling Policy and Consumer Choice” and is authored by Youngju Kim, SunAh Kim, and Neeraj Arora.

Genetically modified (GM) foods are widespread worldwide, but they are also controversial and subject to regulatory oversight. For example, in the United States, all GM foods will be required to display a “Bioengineered” label by 2022, a policy decision that is heavily debated. Most scientists claim that genetically modified organisms (GMOs) in foods are safe for human consumption and offer societal benefits such as better nutritional content. In contrast, many consumers have an overall negative attitude toward GMOs. These conflicting views create a fundamental tension for policymakers in how GM-foods should be labeled.

To reconcile the diverging views that scientists and consumers have on GMOs, policymakers all over the world adopt either a voluntary or a mandatory GMO labeling policy. In a voluntary labeling regime, food producers who make non-GM products disclose such information through a “non-GMO” label. Conversely, in a mandatory labeling regime, food manufacturers are required to include labels such as “contains GMO” when their foods are genetically modified.

To understand how GMO labeling policies impact consumer choice, this research team conducted four studies.

Study 1 examines whether consumer choice depends on the GMO labeling regime. The results show that each labeling regime greatly affects consumers’ demand for GM foods. Labels such as “non-GMO” (absence labeling) and “contains GMO” (presence labeling) serve as negative signals for GM foods and tend to shrink their market share. The market share shrinkage effect is stronger under the mandatory policy (presence labeling) than under voluntary policy (absence labeling).
 
Study 2 examines the impact of GMO labeling (absence vs. presence) on consumers’ sensitivity to the GMO attribute, price, and category purchase. The results show that presence-focused labeling (“contains GMO”) makes consumers more sensitive toward the GMO attribute, less sensitive toward price information, and more reluctant to make a purchase in a category. Why? Presence-focused labeling enhances consumers’ concerns about GMOs, encourages them to pay greater attention to GMO information, and makes their choice more difficult. 
 
Study 3 finds that the increased preference for non-GM products is amplified when both “non-GMO” and “contains GMO” labels are displayed on the products.
 
Study 4 shows that the signal policymakers decide to send via the GM label (e.g., a green logo may be viewed as an endorsement and a yellow logo as a cautionary signal) significantly affects consumer choice. To be more specific, participants exposed to positive GMO labels tend to be less negative toward GMOs than those exposed to neutral GMO labels. A GMO label format has a greater impact on consumers who have no strong opinions about GMOs, suggesting that preference for GM foods is highly pliable for a large segment of consumers. 
 
Consumers’ willingness to pay (WTP) for non-GM products critically depends on the policy regimes and the label policymakers adopt. Consumers have higher WTP for non-GM products in the mandatory (vs. voluntary) regime and when the adopted GMO label signals a less positive image. Across studies, both the voluntary and mandatory labeling regimes create incentives for firms to add premium-priced, non-GM products to their portfolio of offerings. These incentives are substantially greater in the mandatory labeling regime than in the voluntary regime. 
 
The research teams says that “Our findings provide a clear understanding of how the GMO labeling that policymakers implement affects consumer choice. Any form of GMO labeling has significant externalities.” GMO labeling reduces the demand for GM foods. The signal contained in the GMO label also affects consumer choice. Even a neutral GMO label may lead consumers to focus on the negative aspects of GMOs, pay less attention to price information, and become more reluctant to make a purchase in the product category. Unlike the positive “Bioengineered” logo that the Unites States adopted, the label in Brazil is a yellow triangle resembling a caution sign. Therefore, the externalities of GMO labeling noted in this study will be larger in Brazil.
 
What are the takeaways for marketers? This research reveals that GM labels add an important product feature for consumers to evaluate. The labels draw attention away from factors such as price, allowing firms to charge a premium for non-GM products. GM manufacturers inevitably lose market share when presence-focused labeling is enforced. They face both reduced brand share and reduced category demand. Because mandatory presence-focused labeling makes consumers less price-sensitive, GM food manufacturers may attempt to compensate for their sales loss by considering promotions other than price cuts.

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When everyone works remotely, communication and collaboration suffer – study

Working from home causes workers to become more siloed in how they communicate, engage in fewer real-time conversations, and spend fewer hours in meetings.

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As companies debate the impact of large-scale remote work, a new study of over 61,000 Microsoft employees found that working from home causes workers to become more siloed in how they communicate, engage in fewer real-time conversations, and spend fewer hours in meetings.

The study, published in the journal Nature Human Behaviour and co-authored by Berkeley Haas Asst. Prof. David Holtz, made use of data from before and after Microsoft imposed a company-wide work-from-home mandate in response to the COVID-19 pandemic. The findings suggest that a full-time remote workforce may have a harder time acquiring and sharing new information—which could have implications for productivity and innovation among information workers down the road.

“Measuring the causal effects of remote work has historically been difficult, because only certain types of workers were allowed to work away from the office. That changed during the pandemic, when almost everyone who could work from home was required to do so,” said Holtz, who conducted the research as an MIT Sloan doctoral intern at Microsoft, and co-wrote the paper with Microsoft colleagues Longqi Yang, Sonia Jaffe, Siddharth Suri, and seven others. “The work-from-home mandate created a unique opportunity to identify the effects of company-wide remote work on how information workers communicate and collaborate.” 

The analysis was based on anonymized data describing the emails, instant messages, calls, meetings, and working hours—all stripped of their content and identifying information—of the overwhelming majority of Microsoft’s U.S. employees. 

Holtz, a faculty affiliate at the Berkeley Institute for Data Science and research affiliate at the MIT Initiative on the Digital Economy, said that while the pandemic offered a rare opportunity to study the impact of firm-wide remote work, significant effort was required to understand the extent to which changes in behavior were caused by remote work in particular rather than the upheaval of the pandemic itself. After all, workers suddenly found themselves navigating shelter-in-place orders and supply shortages, caring for children home from school or vulnerable relatives, and coping with general stress and anxiety.

Microsoft, where 18% of employees were working remotely before the company issued its work-from-home mandate, offered the opportunity for comparison. The authors separated out the effects of remote work from other effects of the pandemic by using a statistical technique to compare those Microsoft employees who were already working from home with those who abruptly shifted online during the pandemic.

The researchers had access to anonymized data on employees’ roles, managerial status, business group, length of tenure at the company, and what share of their co-workers were remote prior to the pandemic; they matched groups of workers with similar observable characteristics. They also used aggregated weekly summaries of the amount of time workers spent in scheduled and unscheduled meetings and calls, the number of emails and instant messages they sent, and the length of their workweeks, as well as monthly summaries of workers’ collaboration networks.

Among their key findings:  

  • Company-wide remote work caused workers’ collaboration networks to become less interconnected and more siloed. They communicated less frequently with people in other formal and informal business groups.
  • Remote work caused workers to spend about 25% less of their time collaborating with colleagues across groups, compared to pre-pandemic levels. Remote work also caused workers to add new collaborators more slowly.
  • Conversely, remote work led workers to communicate more frequently with people in their inner network, and to build more connections within that inner network.
  • Remote work caused workers to spend more time using asynchronous forms of communication, such as email and message platforms, and less time having synchronous conversations in person, by phone, or by video conference.
  • Remote work also caused the number of hours people spent in meetings to decrease by about 5%, suggesting that the increase in meetings many experienced during the pandemic was not due to remote work, but due to other pandemic-related factors.  

Holtz said that the team was also able to separate the effects of company-wide remote work into two separate components: how your own collaboration patterns are affected when you work remotely, and how your collaboration patterns are affected when your collaborators are working remotely. They concluded that both are important.

“The fact that your colleagues’ remote work status affects your own work habits has major implications for companies that are considering hybrid or mixed-mode work policies,” he said. For example, having one’s teammates and collaborators in the office at the same time improves communication and information flow for both those in and out of the office. “It’s important to be thoughtful about how these policies are implemented.”

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