The 30 major factors behind a successful customer loyalty programme

A good loyalty programme has the power to transform a business into a customer-centric profit machine. Here, we offer a thirty-point list of the major factors that directly impact the success and profitability of a customer loyalty programme…

In this article, we’ve drawn guidance and data from The Loyalty Guide report, to offer practical insights into using customer loyalty programmes and data to increase not only customer retention but also customer lifetime value and profitability by means of a long-lasting customer relationship. We have purposely kept our focus on practical matters rather than merely expounding theory.

The case for loyalty initiatives
It is vital for the marketing department to contribute to the profitably of the business, and it has to be able to measure and demonstrate its contribution to profits, despite a the common misconception that marketing is a cost centre, not a profit centre. But at the same time, the marketplace is changing: customers are becoming more demanding, and competition is becoming more intense. It’s becoming increasingly difficult to differentiate one business from another. Technology is providing some answers, but each answer brings more choices and more decisions to be made. However, it is sensible to:

Focus on the best customers that you already have;
Optimise the profit that can be made from them;
Increase the period in which they remain customers;
Be able to produce measurable results of success.

Benefits of a loyalty programme
A well designed and run loyalty programme can do all of these things. But it is just one aspect of a comprehensive marketing strategy. Having said that, if a loyalty programme is used to full effect, it should be the central pillar of that strategy. The theory of customer loyalty is quite simple: a business that retains its customers for longer usually makes more money from them at lower cost than one that is constantly paying to acquire new customers. The basic principles are simple, too: know your customers, and only reward them for behaving in the way that you want.

Through a loyalty programme, customer and transactional data can be collected, and the intelligent use of that data will provide a much clearer picture of the customer base – and this will lead to more profits from the beginning. A common question is “What proportion of turnover should a loyalty programme cost, and how long should it take before it begins to pay back?” Well, although there is no definite answer, a good loyalty programme will pay back from the very beginning. (Tesco’s ClubCard – arguably one of the biggest and best-run loyalty programmes in the world today – actually made money from Day One.)

Thirty factors that make loyalty pay…

Focus on acquiring data, not just repeat visits
A so-called “loyalty programme” can’t buy true loyalty – or even repeat visits – in any lasting way. This is a popular misconception. Early operators thought that the reward would be enough to bring customers back time after time. But it didn’t take long to become apparent that they were mistaken. Customers simply carried many loyalty cards and collected points wherever they shopped. They were just as promiscuous as before. The smarter operators used loyalty programmes not to buy repeat visits but to garner information from their customers in order to learn more about them: who their most profitable and least profitable customers were, what they wanted, and what changes or offerings would be most likely to make them truly loyal.

Target customer acquisition more accurately
A loyalty programme should attract new customers to the business. How effectively it does so will depend on how exciting and how valuable the rewards seem to be to the target audience. Acquiring customers is no doubt essential to any business, but it can be expensive if compared to nurturing existing good customers. But it should not be the central focus of the loyalty programme. However, the quality of new customers acquired can be raised by careful use of the existing data from a loyalty programme, which can be used to establish the demographic profiles of existing ‘best customers’, and then to target prospective customers with similar demographic profiles in acquisition campaigns.

Move customers up the spend bands
By grading rewards (for example, offering extra points for exceeding a specified spend threshold in a time period), customers can be moved up from one spend level to the next. A good example of this is how The Continuity Company (a provider of best customer marketing programmes) skews its rewards in its Best Customer Marketing programmes (also known as ‘continuity programmes’) to encourage lower-spending customers to move up through the spend segments. In one of the examples, the top spending band’s contribution to sales increased by 41%, the next band down increased its contribution to sales by 45% and the lowest spend band decreased its contribution to sales by 7% (because customers from the lower spend segments had increased their average weekly spend and moved into higher spend segments).

Intelligent deselection of the least profitable customers
It can be more profitable to lose bad customers than to gain new ones. ‘Cherry pickers’ (customers who buy only your discounted lines and nothing else) cost you money, as does any low-spending customer. They cost more money to service than they generate. Designing a loyalty programme that rewards better customers without rewarding this segment at all gives these less-desirable customers less reason to stay. In fact, the Syracuse, NY-based Green Hills Supermarket has observed that only around 30% of customers actually generate enough profit to cover the cost of servicing them. In Philip Kotler’s version of a Pareto Principle chart, the top 20% of customers generate 80% of the profits, while the bottom 30% of customers eat up 50% of the profits that the others produce.

Win back profitable customers that have defected
Customer win-back expert Michael Lowenstein (of Harris Interactive) says that the success rate in approaching ‘lost’ customers can be three to four times as high as it is when prospecting for new customers. For example, the rate for converting prospects might typically be 5%, while that for reactivating inactive customers might be as high as 15% – 20%. In the book Customer Winback by Jill Griffin and Michael Lowenstein, it is reported that there are several reasons why customer win-back has a greater chance of success than acquisition. You have advantages with lost customers that you don’t have with prospects, including: information about their past purchase history; where and how to reach them; and their preferred communication channels.

Increase Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) is increasingly being recognised as one of the most important measures of the worth of a customer. It takes into account not only the customer’s value now but the expected value over their projected lifetime as a customer. It is arguably the best way a marketer can demonstrate unequivocally that a programme is working: the CLV of targeted customers will rise. Being able to identify customers through a loyalty programme means being able to monitor long-term customer lifetime value, and being able to identify the demographic, sociographic, and even purchase profiles that define the most profitable customers – and that knowledge enables you to target and develop more of them.

Build real customer relationships based on relevance
Building relationships is crucially important but not always as straightforward as it might seem. It has been said that relationship marketing is powerful in theory but troubled in practice – an unpalatable concept but probably one with which many marketers could identify. Building a relationship with customers can lead to improved behavioural loyalty and thus to increased bottom-line profits. If you examine the human elements of a long-lasting relationship you’ll find several elements, all of which can be approximated by careful collection and analysis of loyalty programme data. The key element, trust, can be built up by always excelling at customer service and problem correction, and by providing consistently good products and services that suit the customer’s unique needs. Surprise and delight can be achieved by delivering personal offers for the most profitable loyalty programme members, such as birthday discount shopping days.

Set fairer tiered pricing policies
There was a time when manufacturers recommended a price for each item, and retailers simply charged that price. Any differentiation then was purely on convenience, ambience, product range and quality of service of the retailer. But the data from a loyalty programme can help formulate pricing structures. If enough best customers are happy to buy a product at a particular price there seems little point in reducing that price simply to attract cherry-pickers. The effect of changing prices can also be studied – for example, which customer segments buy significantly more or less. To help with differentiation, some retailers reduce the prices of key products to attract new customers (hoping they will buy other products as well as the reduced-price ones). Other retailers try to “buy loyalty” to low pricing (EDLP or Every Day Low Prices). Yet others use Profit Up Front (PUF) pricing, where the customer pays to be a shopper but gets low prices all-round. Recently a fourth way, called ‘Access Pricing’, has emerged, allowing customers to use loyalty points to ‘buy’ extra discounts on selected items in store (e.g. US$9.99 for nappies, or US$3.99 plus 600 loyalty points).

Intelligent response to competitive challenges
A good loyalty programme’s ability to tie purchases to individual customers allows quick and accurate identification of customers who defect when new competition opens nearby. They can then be enticed back with customer-specific special offers or even direct contact. In his book, Loyalty Marketing: The Second Act, Brian Woolf describes how one fairly small, older store had to face up to a competitor opening a much bigger store on the same parking lot. In anticipation, the small store was extensively remodelled, causing considerable disruption. Over the period of remodelling (a matter of several weeks) turnover dropped by 40%. However, a loyalty programme enabled management to identify regular shoppers and mail them a letter thanking them for their patience and enclosing some special offers. All but 183 customers returned to the store. The store management team then sent handwritten invitations and a US$10 gift certificate to those 183 customers. All but three returned. After the new competitor opened, the smaller store’s whole customer database was mailed an offer containing US$5-off coupons for US$50 orders in each of the following twelve weeks. Any customer using all twelve received an extra US$10 certificate. The result was that sales actually rose by between 6% and 7% over the months following the new opening. The competitor’s store (which was approximately twice the size) achieved less than half the sales of the remodelled store. This shows the power of knowing who your customers are.

Improving product range and stock selection
Knowing what best customers buy frequently helps choose which lines to stock and which lines to expand on. The owner of a small suburban supermarket in the UK had some twelve months’ notice that a large national supermarket was opening right over the road from him. He realised that without major changes he would not survive. What he did was simple but clever. The suburb in which he was situated was mixed, having mainly low-cost housing but also a very exclusive area. Many of his customers were low earners who bought their basic requirements every day or two from him – in essence, what they could carry home in a couple of bags. He knew that they would migrate to the lower prices and bigger ranges of the big chain. However, a considerable number of the more wealthy people would call in on their way home from work to pick up bread and milk and a few odds and ends. He started noting what they bought, and what they never bought. Over the months, he stopped ordering products that they never bought, and increased his range of things that they did buy. Over the year, his store slowly changed from a small supermarket to a very big delicatessen. His wealthy customers told their friends and the composition of his customer base changed from mainly low earners to mainly high earners. When the supermarket opened over the road, his low earners did migrate, but he hardly noticed the difference.

Better merchandising and store layout planning
Basket analysis can identify what lines are bought at the same time, particularly by best customers, and planograms can be planned accordingly to encourage cross-purchasing. The apocryphal story of a retailer discovering from basket analysis that men who buy baby nappies also buy beer (the refined version includes “on Friday evenings”) may be true or not, but it does illustrate the potential of the principle in its own (bizarre) way. Insights similar to this are used widely to plan planograms for store merchandising. Of course, on one level, plain basket analysis without a loyalty programme is enough for this purpose. But add the dimension of knowing who the customer is, how much they spend, and where they live and you can confidently decide whether it is worth putting a display of nappies in the beer aisle on Friday evenings or not!

Reduce promotional and advertising costs
When you have a loyalty programme – and the detailed data that comes with it – your advertising can be targeted instead of untargeted, and significant savings can be made. There is no need to send out thousands of flyers that will be thrown away unread, or take pages of newspaper space that is irrelevant to many of the readers. Better still, the response from such targeted advertising can be measured accurately because the audience is known to you, and each offer can carry a unique identifier that ties the offer to both the customer and the moment of redemption. The cost-saving advantage of targeting can be astonishing. In one instance reported by the DMA a few years ago, a company mailed an offer to 450,000 of its ‘better’ customers. The mailing generated US$22 in revenue for each US$1 spent. On analysing the response data, it was found that 97% of sales came from 13% of the ZIP codes. Imagine the difference that that made to the profitability of future mailings.

Geographical targeting for new store locations
Selecting a site for a new store is no longer a case of sticking a pin in a map, or choosing a site on a hunch. The loyalty card enables you to profile the demographics of best customers and – because it is often likely that the best prospective customers will have similar demographics – choose new locations much more accurately. In addition, if the addresses of existing customers are known, they can be plotted geographically and sites can be chosen where there are outlying pockets of customers or gaps in coverage.

Loyal customers directly impact company profitability
There are many ways in which it pays to earn the true loyalty of customers. For example: Loyal customers buy more, and are often willing to pay more, which means a steadier cash flow; Loyal customers tend to refer others to your business, saving you the marketing and advertising costs of acquiring them as customers; Loyal customers are more forgiving when you make mistakes – even big ones (especially if you have a system in place that empowers employees to correct errors on the spot, in which case even greater loyalty is usually earned); A loyal customer’s endorsement is more powerful to their family and friends than any ad campaign; Thriving companies with high customer and employee loyalty levels are generally seen to outpace their competitors; Loyal customers become familiar with your way of business, and are usually the first to see and report opportunities for improvement; and of course an increase in customer retention can boost bottom line profits significantly.

Developing a core offer that can’t be refused
The companies that boast the highest levels of fiercely loyal customers have built that loyalty not on card programmes or gimmicks, but on a solid, dependable, core offering that appeals to their customers. These companies have focused intently on what they know appeals to the type of customers they want to attract, and have determinedly concentrated on delivering what is expected every time. For example, the North American retailer Nordstrom is well known for the extreme loyalty of its customers. It built this loyalty by understanding what its customers wanted and then empowering its employees to deliver those needs consistently. The data from a good loyalty programme will help improve this core offering by tailoring and moulding it more closely to the customers’ needs and desires.

Influencing customer satisfaction levels
Clearly, satisfaction is important; indeed essential. But, taken in isolation, the level of satisfaction is not a good measure of loyalty. Many auto manufacturers claim satisfaction levels higher than 90%, yet few have repurchase levels of even half that. The situation is stacked against the business: if customer satisfaction levels are low, there will be very little loyalty. However, customer satisfaction levels can be quite high without a corresponding level of loyalty. Customers have come to expect satisfaction as part and parcel of the general deal, and the fact that they are satisfied doesn’t prevent them from defecting in droves to a competitor who offers something extra. The point is that, while high levels of customer satisfaction are needed in order to develop loyal customers, the measure of customer satisfaction is not a good measure of the level of loyalty. The two are not measuring the same thing.

Influencing the elasticity of a purchasing decision
Elasticity expresses the importance and weight of a purchasing decision – effectively the level of involvement or indifference. This applies to both the customer and the business. The more important your product or service is to the customer, the more trouble they have probably taken in their decision to do business with you, and the more likely they are to stick with what they have decided. Most customers would be highly involved in the category when choosing a new car, a new jacket, or a bottle of wine. However, when choosing a new pair of shoelaces, involvement is not usually high. Businesses dealing in commoditised products and services cannot expect high involvement and need to earn loyalty in other ways. The customer’s level of ambivalence is also important. Few decisions are clear cut. There are usually advantages and disadvantages to be balanced, and vacillation is unstable. Again, we see that the more commoditised a product or service, the more difficult it is to cultivate loyalty. It is only when points of differentiation are introduced that the customer has a valid reason for consistently preferring one particular supplier.

Judging the marketplace’s influence on customer loyalty
The marketplace is a key factor in the development of loyalty. The elements most closely involved are: ease of switching, and inertia. If the number of competing suppliers is high and little effort is required to switch, switching is likely. Conversely, the more time and effort invested in the relationship, the more unlikely switching becomes. The level and quality of competition has a significant effect on how easy it is for a customer to switch from any one particular supplier. When competitors are offering very similar products at similar prices, with similar levels of service, some means of useful differentiation has to be found in order to give customers a reason to be loyal. But inertia is the opposite: most banks enjoy a high level of inertia loyalty simply because it’s often so difficult and time-consuming to change to a new bank and transfer direct debits and standing orders.

Using demographic data to predict loyalty
According to Jan Hofmeyr and Butch Rice, developers of ‘The Conversion Model’ (which enables users to segment customers not only by their commitment to staying with a brand but also to segment non-users by their openness to switching to the brand), more affluent and better educated customers are less likely to be committed to a specific brand. They say that the commitment of less affluent consumers to the brands they use is often unusually strong – possibly because they cannot afford to take the risk of trying a brand that might not suit them as well. They also suggest that younger consumers are less committed to brands than older consumers. Interestingly, these differences carry over into cultural groups as well: they find that French-speaking Canadians are more likely to be committed to a brand than English-speaking Canadians, and Afrikaans-speaking South Africans are more likely to be committed than English-speaking South Africans. In their excellent book, Commitment-Led Marketing, they show how commitment norms for the most frequently used brand of beer vary from country to country. At the two extremes we see both Australia and the UK (58%) and South Africa at 83% – a considerable difference.

Increasing share of wallet
Share of wallet expresses how much of a consumer’s total spend in a given category they award to your company. For example, if a household buys US$800 worth of groceries each month, and they buy US$200 of that in your supermarket, your share of wallet for groceries is 25%. As markets become saturated and customers have so much more to choose from, share of wallet becomes increasingly important. It is cheaper and more profitable to increase your share of what the customer spends in your sector, than to acquire new customers. After all, that’s what loyalty is really about. Totally loyal customers would give you a 100% share of their spend in your sector. A loyalty programme that’s working properly provides enough data about consumers and their households to be able to reasonably estimate share of wallet. There are complete formulae and data analysis tool-sets just for the job.

Promoting the brand to build customer loyalty
Every business must develop and deliver a consistently branded experience for its customers. The essence of the brand should be apparent in every interaction a customer has with the company, enabling customers to form an emotional attachment with the brand. This includes: training and enabling front-line employees who interact with customers; developing high-impact marketing campaigns; defining the brand’s “promise”; and segmenting customers on the basis of value. The loyalty programme provides a truly multi-channel vehicle through which to communicate this brand experience, and through which the consumer can become more attached to the company and its brand.

Becoming truly customer-centric
Most businesses are, by nature, either product-centric or service-centric. Remember the days when business owners knew their customers by name, and knew their personal preferences – and just about everything else there was to know about them? Those who have realised the value of a customer-centric approach have thrived: examples are the Tesco Clubcard programme in the UK, widely regarded as one of the best loyalty programmes in the world, and the Nectar retail coalition programme, which very quickly signed up 13 million members, representing half of the UK’s households. But adopting a customer-centric approach generally involves changing several procedures, including: marketing, sales and service applications must be merged seamlessly; differentiation based on products or services must be changed to differentiation based on customers; reactive service must be swapped for proactive service; and data that’s segmented by products must be segmented by customers instead. Again, the loyalty programme’s data is already customer-centric by its very nature, and the implementation of a loyalty programme is a vital opportunity to merge cross-department data silos.

Ensuring the success of a loyalty programme
There are dozens of elements that are critical to the long-term success of any customer loyalty or relationship marketing initiative. First, these programmes are definitely not a ‘quick fix’ for an ailing corporate bottom line. It takes time to build loyalty because loyalty is based on trust- and relevance-based relationships with best customers. Accurately targeted marketing is a benefit of loyalty data, and is essential if the programme is to be seen as ‘relevant’ by its members. Other secrets of success include: gaining consumer buy-in, knowing your customers, rewarding only the right behaviour, rewarding and recognising customers in the right circumstances, spotting defection patterns, insights into customer lifecycles, making sure rewards are attainable, recovering the programme’s costs in a reasonable time, well timed and relevant communications, keep the programme simple to understand and use, measuring campaigns and results continually, acquiring new customers, having unique and uncopyable benefits on offer (as a barrier to entry for competitors in the same space), empowering your staff to make the right decisions under all circumstances, and of course making the customer’s life easy.

Detailed planning and careful execution
The list of issues to consider and pre-plan when designing a loyalty programme is enormous: there are hundreds – sometimes thousands (depending on programme complexity) – of individual action points that have to be worked through before a programme can confidently be called “a success”. Indeed, any failure to address some of the more important points could result not only in a failed programme but also unrecoverable expenses, lost consumer good will, legal problems, and lasting brand damage. The loyalty consultancy and management company ICLP uses a comprehensive list, of which the following are just a few of the more important issues to be defined: Loyalty programme markets and objectives; strategy (programme type, proposition, comms, partnerships, infrastructure, etc.); objectives, key process flows, KPIs, rewards, benefits, financials, and timelines; desired behavioural changes; benefits and rewards, type, tracking, communicating, bonussing, reward currency, breakage, and liability; partnership details; tiers (both thresholds and management); financial and administrative controls; legal aspects; staff requirements and training; ROI; programme rules; system functionality; fulfilment process and costs; data requirements and usage; and the list goes on. There is much to be planned for a well-executed programme.

Rapid market penetration with a coalition programme
Partnership in a coalition loyalty programme is often thought of (quite rightly) as a quick method of entry into the field of customer loyalty – however, there are disadvantages that must be weight up first, such as the ownership and usage of loyalty programme and customer-specific data, and potential competition of other programme partners in future markets you plan to expand into. Successful coalition programmes have a major partner in several of the key consumer sectors in order to quickly capture a significant proportion of consumers’ spend. Ideally, this would be a major grocer, fuel retailer, bank or credit card, department store, and mobile telecoms provider. Proportions as high 50% – 60% of the target market can be enrolled very quickly. This means that not only is the data collected more representative of the target market but that the share of each consumer’s wallet is also maximised. Most importantly, new partners joining the programme after it becomes established will automatically gain the same degree of market penetration as the existing partners, and co-marketing activities with the programme’s operator will usually raise consumer awareness rapidly.

Successful CRM (customer relationship management)
The loyalty of customers stems from building relationships with them, and those relationships have to managed. This is where CRM comes in. Whether the relationships are so finely tuned as to be one-to-one relationships, or whether they are in bigger segments or groups, the principles of management are similar. Over the past decade CRM has come to be regarded by many marketers as being synonymous with huge, costly IT systems. But many of the big companies have now passed through that stage, and are focusing more on explaining to both employees and customers the benefits of the system, and streamlining the laborious processes of data collection. CRM’s reputation is improving – it is making a come-back. Some of the key faults that can cause CRM projects to fail or prevent delivery of the expected ROI are a reliance on technology as a global ‘cure-all’ and down-playing the importance of management level buy-in. But having the correct focus and commitment can significantly improve a CRM initiative’s performance. According to IBM’s research, CRM should be run at the corporate level or with a cross-functional perspective – and when this is the case, there is a 25-60% greater chance of success.

Using gift cards and store value cards for loyalty
The market for gift cards – many of which are pre-paid, stored value cards – is expanding rapidly. Clearly, the card is the mechanic: what is done with it determines how useful it is as a vehicle for building loyalty to the retailer. Copious research has been carried out to show the potential of the gift card market. Gift cards have been widely used in the US for longer than in other parts of the world, but the popularity is now beginning to spread. Gift card merchants can use different types of promotions to increase the level of excitement. For example, creating a swipe and win sweepstake when the gift card is redeemed is an excellent way to drive additional sales. Another opportunity that can benefit both the merchant and the customer is the use of receipt coupons, or custom coupons, as part of a gift card programme. For stored value cards that are a cash replacement and need customers to re-load their cards, a bonus can be given when they add value to the card. And if something can be offered that is difficult to put a price on – priority service, a backstage pass, a ticket on the 50-yard line at the Superbowl – there is an opportunity to create ‘extreme perceived value’. All of these are gift card-based ways of generating renewed consumer engagement.

Use the six Ps of customer loyalty marketing
Loyalty programmes have become necessary due to vast customer bases and market sizes, according to The Allegiant Group, which suggests adding two new ‘Ps’ to the well-known ‘Four Ps of Marketing’ (those being Product, Price, Place and Promotion). The two newcomers that stand to benefit the customer loyalty marketer are People and Performance: People (and how they affect customer loyalty) are an increasingly important part of the marketing mix, and the Performance of the entire enterprise, and its quality and consistency therein, is increasingly critical to delivering products and services in a way that engenders loyalty and repeat purchasing behaviour. Other critical success factors in the development and management of successful loyalty initiatives include: strategy and economics, the features and benefits offered by the programme, the methodology of the reward component, and the metrics and measurements used to track the effect of the programme.

Building a database that can really create loyalty
There’s a myth that says most companies have enough data about their customers to conduct successful marketing campaigns. But, in fact, some of the largest firms in the world have not assembled the personal identities and key contact information of their largest customers into a single database. Instead, the information resides in the minds, drawers, or handheld PDAs of their sales representatives. Rarely is it warehoused as it should be. The amount of junk mail the average consumer gets today proves the point: despite talk of CRM, it hasn’t improved relationships between consumers and their suppliers. The problem is that properly implementing a customer database is far more difficult than ever imagined. A customer loyalty programme’s unifying effect on data, if the data structure is properly planned based on clearly set-out business objectives, forms the basis of relationship-based campaigns that start with “Fred, we see you’ve moved – here’s a map of your local stores to get you started” instead of mailers that start with “Dear Occupier”.

Avoiding technological problems with loyalty platforms
If you’re setting out to find a ready-made or partly-customised loyalty platform, there are hundreds of points to consider before making a final choice. In 2005 a survey of the capabilities of over 30 loyalty programme platforms was conducted by UK-based MJA Associates, finding that many of the solutions examined were merely “points engines” that could increment and decrement the points in a member’s account but were limited in the functionality required to manage bonussing, lifestyle data collection, surveys, partner management and other fundamental operations. Most of the loyalty solution software platforms examined were lacking in many areas – particularly in terms of bonussing, partner management, survey functionality, and contact centre information screens. Of the hundreds of factors, these are just a few of the most important: Application and member number tracking; Archiving of programme data; Audit logs; Awards redemption processing; Bonussing functions and flexibility; Card management; Different currencies and languages; Events management; Interactive Voice Response features; Fees management; Kits and cards processes; Location hierarchy; Member services provisions for call handling; Member management, transaction and attributes recording; Partner management; Points expiration; Point types; Reporting; Security; Development kits and APIs; Statementing; Surveys; Tiering; and Financial transactions and points management. It’s important that the system you choose has the features you need, not only for today but for the future development of the loyalty programme.


Five Things Leaders Can Do When Things Get Ugly

We all understand the difference between good times and bad times at work. During good times, people are comfortable in their roles, the work gets done, and the enterprise moves forward steadily on the strength of its mission and the momentum of its people and processes. Good leaders seize on the opportunities good times provide to accelerate progress and maximize the chances of future success.

When things are going poorly, it’s often hard to pinpoint the source of the difficulty. Even when the causes are known, solutions can be elusive. Good leaders understand that forging ahead and learning from such challenges can develop important strengths in both the leader and the organization.

What are the critical skills and instincts for dealing with difficult times? The ability to assess the situation tops the list. Many issues are nuanced while others are masked, so getting your arms around the true nature of the situation is vital.

Here are five questions to ask when you first sense that something is wrong:

1. What is the true cause of the problem?
2. Does the problem stem from people, process, or strategy?
3. Are you the last to know?
4. Who can help you address the problem?
5. How does the issue to be addressed relate to your customers?

Let’s look at each question in turn.

What is the true cause of the problem? Here at the outset, you need to distinguish symptoms from true causes. Is the problem that the company isn’t making money? Or is it that the sales department is poorly run, or that the world is changing and the company’s market is disappearing, or that someone is cooking the books and stealing from the company? Is the problem that the CEO can’t manage the current scale of the enterprise, or is it that tensions between the CEO and the board of directors have caused important strategic decisions to be postponed or poorly made? Are the products poorly engineered, or are vendors producing second-rate components that don’t perform as designed?

Recognizing symptoms is important, but your inquiry cannot stop there—you have to deeper to find the thing that you really need to change.

Does the problem stem from people, process, or strategy? The cause of an organization’s difficulty typically falls into one of these three categories. Each calls for a for a distinctive approach to the solution, so take time to make sure you’ve got the categorization right.

Are you the last to know? Obviously, this question isn’t meant to be taken literally—it underscores the idea that the existence of a problem may be widely known. So ask around. Confirm your perceptions with others. You may not only discover that the issue is older and broader than you suspected, you may also find people who have already thought about it and who can offer useful insights and suggestions. Besides, there’s no point in wasting social and reputational capital by declaring “Eureka, I’ve uncovered a problem” when everyone else is already aware of it. If it is the case that you’re the last to know, that should tell you something about your blind spots, or the quality of the information you’re getting from your team—or both.

Who can help you address the problem? Only rarely will you be able to solve a problem all by yourself. The most important work in organizations gets done by groups. But that doesn’t mean you should be nonchalant in your choice of people to help you address the situation. Don’t just take peoples’ skills, experience, network of influence, and organizational roles into consideration. Many problems have far-reaching practical and political implications, and you need to feel secure about the team you’ve assembled to address it. So think very hard about whom you trust enough let in on the problem.

How does the issue to be addressed relate to your customers? The dictum Customers come first applies here: before you make any change in the way you do business, you need to understand in exquisite detail what its effect will be on your customers. A change in market strategy, a change in service or product design, even a change in employee incentives or pay scales—they all can have an impact on customers.

Asking (and developing provisional answers to) these questions not only helps formulate a plan for addressing the difficulties your organization is facing, it also gives you some welcome confidence that you and your team will be able to turn the situation around. That emotional boost is just as valuable as the analysis that flows from these diagnostic questions.

The Action Plan

• When things start to go sour, don’t leap to conclusions about the source of the problem. Scrutinize your people, processes, and strategy, and be careful not to confuse symptoms with underlying causes.

• Cast your nets widely to find out who else knows about the problem and who can be useful in crafting a solution. If you’re the last to learn about a problem, you need to broaden your information network to include not only more people in a wider range of functions and levels, but also more people who are willing to tell you things you may not want to hear.

• Trustworthiness and political savvy are just as important as technical expertise when it comes to assembling a team to help you identify and address the problem.

• Once you’ve got a handle on how to proceed, check and recheck the proposed solution’s impact on your customer base. If the effects are damaging to customer loyalty, then you haven’t found the solution yet.

IPad Wine Menu Offers Restaurants Affordable Way to Increase Wine Sales and New Customers

Uncorkd is a new solution for restaurants, hotels and nightclubs to create their very own wine list on an iPad tablet. Over the last year, dozens of America’s top restaurants have been spending big bucks for custom-made iPad applications for their wine list to a great reception from their customers. Restaurants that have switched from paper menus to iPad wine menus have seen wine sales increase as much as 20%.

Uncorkd is different than existing solutions that cost an arm and a leg because it is a web-based platform that makes creating an iPad wine menu affordable for any small, medium or large restaurant. With Uncorkd, restaurants have full control over their own menu, with the ability to customize the look and manage their wines in real-time. There is no need to spend thousands of dollars to find a software programmer; in as little as 24 hours a restaurant can be up and running with their very own iPad wine menu.

“We saw a lot of restaurants wanting to take advantage of this technology, but couldn’t afford to spend tens of thousands of dollars to try it out. As a result, we decided to build a web-based platform that allows any restaurant, with any budget, to have their own iPad wine menu and quickly and easily increase their wine sales,” according to Joshua Saunders, CEO of Ideavation.

For diners, it’s like having a personal sommelier right at the table. The Uncorkd application enables guests to sort the wine list by varietal, price or region, or search for wines with specific tastes or characteristics. Unlike a traditional wine list, Uncorkd enables restaurants to have detailed information on where the wine comes from, a full description, image of the label, tasting notes, and much more. Diners love having this information at their fingertips because it helps them feel more comfortable ordering wine and finding one that is right for them.

When bad websites happen to good restaurants

In December it appeared, so simple it was brilliant: a Tumblr blog called “Never said about restaurant websites.’’ In black type on a white background, it featured a stream of ironic quotes.

Tweet 86 people Tweeted thisYahoo! Buzz ShareThis “If the flash animation is sick enough, I don’t mind if it crashes my browser.’’ — No people.

“I love downloading PDFs. Even if the menu is totally out of date, it’s worth the thrill.’’ — Absolutely no one.

“Who needs the phone number of a restaurant when you could be enjoying stock photos of food?’’ — Zero people in the history of time.

It quickly went viral, linked to by websites such as Eater and Huffington Post, retweeted hundreds of times.

A few weeks later, the website McSweeney’s Internet Tendency ran a piece titled “If This Fusion Restaurant’s Website Could Talk.’’ An excerpt: “HEY HEY HEY! Watch this slide show! LOOK! We have modern chairs and minimalist light fixtures!! LOOK! It’s an orchid floating in a pool at sunset! Want to hear some DANCE MUSIC???? Mute it any time you like! Just click the animated parakeet flying around the screen! You want to get into the site??? Just click the smallest fork!!! DANCE MUSIC!!!!!’’

Restaurant websites are famously bad. They are easy targets for mockery — often user-unfriendly tools that feature Flash animation, embarrassing techno music, and menus that turn out to be PDF files, as you realize only once they start downloading. Meanwhile, basic information about location and hours is hard to come by, daily specials lists date to 2006, pages are permanently “under construction,’’ and the darn things won’t load on your iPhone.

Anyone who enjoys eating out spends a lot of time looking at these sites. Perhaps you too have tried to view, say, the menu at Bergamot, only to be buzzed by an adorable cartoon bee flying whimsically all over your screen. Or maybe, on a groggy Sunday morning, you’ve turned to Coppa’s website for information about brunch and been defeated, in your pre-coffee state, by screens asking you to wait while they load, advising you to resize your browser window, and assaulting your eyeballs with flashing yellow and brown graphics. And God forbid you’ve needed information about a specific Todd English restaurant. You might have tracked it down, but not until after watching an animated version of the chef freaking to dance music while seasoning food and sharpening knives. It’s enough to make you want to create a restaurant website parody of your own.

This is not to single out these restaurants’ websites, which are no worse than many local establishments’. And the people behind them are aware they need work. Bergamot recently redid its site, and that bee is no longer on the wing; a long-outdated menu has also been replaced by a current one, albeit divided into separate PDFs for appetizers, entrees, etc. (Unfortunately, descriptions of the dishes are unreadable if you’re on a Mac.) Coppa chef and partner Jamie Bissonnette says they’re trying to figure out how to remove some of the Flash on their site. English’s website is being redone; a new version should launch within the next month.

But the question remains: Why are so many restaurants’ sites so challenged? Chefs and restaurateurs are arbiters of taste offline. Their good judgment can’t simply fly out the window when they take to the Internet. So why do bad websites happen to good restaurants?

The reasons, it turns out, are fairly straightforward (although no one can explain the dancing critters or strip club soundtracks).

The first is how swiftly things move online. Websites have shelf lives. What may have looked good five or six years ago seems impossibly dated now.

“The website is a sign of the times. It represents the trends of that moment on the Web,’’ says Rory Keohane, cofounder of Oat, the Somerville graphic design and branding studio that has created websites for Bondir, Trina’s Starlite Lounge, Russell House Tavern, and other local restaurants. For a designer, looking at a website is like counting the rings on a tree trunk — it’s easy to pinpoint its age, he says. “No one would build a Flash site now for a restaurant. Five years ago, it was ‘Where are the most bells and whistles?’ That’s not a justification for them still being there.’’

For designers and users, the emphasis now is on accessibility. Websites have to be easy to navigate, for computer users as well as people on smartphones and tablets. This isn’t news to restaurateurs, who are as attached to their gadgets as the rest of us. Their websites just have to catch up.

“We’re moving away from Flash. Everyone’s always on their iPhone,’’ says English (who carries both an iPhone and BlackBerry, if you were wondering). “The new website is going to be cleaner, faster, more modern. It will be more about accessibility and ease of using it. We’re creating Facebook sites for all the individual restaurants. Anything with social media is really important right now. It was only, like, three years ago that we redid it. Things come and go.’’

Then there’s the matter of money. Restaurants have tight budgets at the best of times. When they’re opening, cash is flying out the door. Often, there’s simply not the budget to create a great website, something that might reasonably cost anywhere from $5,000 to $12,000. (Although some of this may be paid in trade, a nice perk for a food-loving designer.)

“We’re a small restaurant so we can’t really pay for it. We don’t even have an office,’’ says Bissonnette. Coppa’s site was designed by an aspiring Web developer, the boyfriend of a former cook at sister restaurant Toro. “I’m not really an Internet guy. My wife and I share a Facebook page. I’m addicted to eBay. But as far as restaurant websites, I never paid much attention. I kind of wish I had,’’ Bissonnette says.

It’s the rare chef who has paid much attention — they’re chefs after all, not website designers. And this helps account for those pesky PDFs. They are there because they are easy to deal with. A chef can swap one file for another without having to meddle with code.

“It’s a nice advantage strictly from presentation,’’ says Adam Gesuero, director of Image Conscious Studios, an East Boston graphic design studio whose clients include Canary Square, Highland Kitchen, and Hungry Mother. By using the actual menu file, “it can look just how it looks in the restaurant. But mobile devices that don’t play nice with PDF become a problem.’’

With restaurants focusing on local, seasonal ingredients, ease of use is more important than ever. Menus change frequently.

The “Never said about restaurant websites’’ blog doesn’t exist for the sake of mockery alone. It also features an instructional section titled “How to make a less horrible website.’’ Instead of using PDFs, it suggests, simply photograph the menu each time it changes. Then post the images as blog entries tagged “menu.’’

There are other things restaurants can do to establish a strong Web presence without too much effort or expense.

When a restaurant first opens, Keohane suggests starting out with a simple placeholder page. Then, when there’s time and money to do it right, roll out a more elaborate site. This is Oat’s strategy with client Island Creek Oyster Bar, whose initial website includes basic information such as address, phone number, and hours and a link to reservation site OpenTable. A full site will launch soon. Gesuero’s Image Conscious Studios is doing the same with Canary Square.

“Don’t go down the route of ‘I have a nephew who knows computers,’ ’’ Keohane warns. “What’s people’s first impression of a restaurant? It’s usually the website at this point. People make purchasing decisions based on that.’’

For that reason, he says, it’s also worth paying for good food photography. “Professional photographers are professional for a reason. They take better pictures than you and I,’’ he says. “Shooting food is really difficult. I’ve heard plenty of times, ‘Oh, my friend has a nice camera.’ It’s not going to do it justice.’’ One great shot is more effective than a gallery of poorly photographed dishes, he says.

But in the move to simplicity, designers stress the importance of not taking it too far. A restaurant website doesn’t just exist to communicate information. It’s a marketing tool, and it helps create an atmosphere.

“You are connecting with people on an emotional level,’’ Gesuero says. “It helps drive their decision to go to that restaurant. There are ways to have something rich and give an awesome, unique experience that maintains some level of timelessness.’’

But then what would we make fun of?

Devra First can be reached at dfirst@globe .com.

Six Leadership Do’s and Don’ts From Oscar Night by Seth Elbin

There’s an old joke that my adopted hometown of Washington, DC is Hollywood for, well, um, not so attractive people. So, of course, to see all the beautiful people in one place one watches the Academy Awards. I’m a big movie buff (Witness my post from a few months ago on The King’s Speech. You may want to bet with me in next year’s office Oscar pool.), so I usually watch the Oscars. Last night was no exception.

One of my favorite parts of the broadcast is seeing how people who spend their careers onstage respond when they have to get up to present or receive an award. Another aspect I enjoy is when the winners from the more minor categories give their speeches. Some of the most spontaneous remarks come in those moments.

Since leaders find themselves “on stage” with regularity (actually, if you’re a leader you’re always on stage whether you realize it or not), let’s see what leadership do’s and don’ts we can mine from Oscar night.

Do think about what you want to say: So as much as I’d like to think I was ahead of the curve on The King’s Speech, it was the odds on favorite to take the big prizes for several months before the Oscars. That gave Colin Firth plenty of time to think about what he wanted to say if and when he received the award for Leading Actor. His opening line, “I think my career just peaked,” struck just the right tone of self deprecation, got a laugh from the audience and probably calmed his nerves down enough to proceed with a brief and well structured acceptance speech. It’s always a good idea to have a solid opening line in mind when you get up on stage.

Do have a sense of the moment: You had to hand it to 95 year old Kirk Douglas when he came out to present the award for Supporting Actress. He had a stroke several years ago, doesn’t speak as well as he used to and uses a cane to get around. The man still knows how to milk the moment, however. He made jokes that the audience laughed with and when it came time to draw the name from the envelope, he interrupted himself three times before announcing the winner. You gotta love a leader who uses his sense of timing to keep the audience on the edge of their seats.

Do say thanks in ways that connect: The thank you’s at the Academy Awards, much as in real life, can seem perfunctory. There were some notable exceptions last night. When Christian Bale thanked his wife as he accepted the Supporting Actor award, he referred to her as his “mast through the stormy seas of life.” (Very nice. I wish I had come up with that line for my wife first.) A lot of moms were thanked last night. My favorite was Luke Matheny, the director and lead actor of the best Live Action Short Film, thanking his mom for running the craft services catering truck during his shoot. Thank you’s always mean more when there’s a personal element to them.

Do show some enthusiasm: With James Franco (more about him in a moment) and Anne Hathaway as co-hosts, the producers of the Awards show made an attempt to reach a younger audience. Anne Hathaway sold it with her energy, enthusiasm and good humor. It makes a big difference when the person leading the show (that will often be you as a leader) seems like they’re enjoying themselves and actually wants to be there.

Don’t show up stoned for your big moment: Based on his perpetual squint, laconic demeanor and monotone delivery, it seems that there was a pretty excellent chance that co-host James Franco was stoned for the broadcast. The contrast between him and Anne Hathaway was stunning and not in a good way. Obviously, I have no idea if Franco was actually stoned but he may as well have been. When you’re on stage (leaders, listen up), you have to project some energy that at least matches if not exceeds the energy in the room. The audience is usually looking for you to lead them to a different place. That requires focused energy. Franco didn’t have it.

Don’t act like you’ve never been there before: Even if it’s your first time on the big stage, give some thought in advance to how you want to show up. Exhibiting a basic level of class is a good idea. When Melissa Leo won for Supporting Actress, she acted (a completely appropriate word) like she was totally shocked. This is after she had won a bunch of other awards over the past couple of months and ran a much criticized campaign (another completely appropriate word) to win an Oscar. Once she got onstage, she acted like she didn’t have a clue what she wanted to say and dropped an F-bomb in the process. (It was bleeped but it didn’t take a master’s degree in lip reading to figure out what she said.)

OK, enough already from me. What other leadership do’s and don’ts did you glean from the Academy Awards telecast?

>Unilever Food Solutions Inspired Restaurant Makeover Contest

>Unilever Food Solutions Inspired Restaurant Makeover Contest

Enter for a chance to win* a prize package
valued up to $100,000!
Are you a Small Independent Operator/Full-Service Restaurant (SIO/FSR) in the U.S. with an annual revenue of $2 million or less (per location) and three or fewer locations? If so, Unilever Food Solutions wants to help grow your business!
One contest winner will be chosen and awarded a prize package that includes:
More than 100 hours of one-on-one consultation services from Unilever Food Solutions to help you better meet your guests’ needs; ensure your menu is fresh, healthy and profitable; and keep your kitchen running efficiently. Consultation services include access to Unilever Food Solutions’ Certified Master Chef and Registered Dietitian
One-year supply of free Unilever Food Solutions professional ingredients (up to $55,000)
$5,000 in cash to invest in front-of-house/back-of-house improvements to your restaurant
An Inspirational Culinary Institute of America (CIA) Experience Weekend for up to four members of your restaurant team to attend the world-famous CIA to work with the Unilever Food Solutions Culinary Team and CIA instructors to improve your menu
To enter our Inspired Restaurant Makeover Contest, simply click on the “Contest Entry Form” tab on this page and tell us about your restaurant operations and how Unilever Food Solutions’ consultation services in the areas of “Your Guests,” “Your Menu” and “Your Kitchen” would make an impact on your business to help you be even more successful.
Inspired Restaurant Makeover Contest entries will be judged by a panel of Unilever Food Solutions employees and partner agency representatives based on the following:
Proven need for Unilever Food Solutions assistance
The compelling nature of the entry
Note: Prize will be awarded to winner’s business, not the individual who entered the contest on behalf of the business. The winner’s business will accept the tax burden for prize package.
Contest deadline:
May 31, 2011
11:59 p.m. ET
Click here for Official Rules and to determine your eligibility.

>2011 Restaurant Industry Forecast