Most loyalty programmes today generate some increase in revenue but do so at far too high a cost, losing money on the bottom line, according to a white paper from Customer Management 4 Profit (CM4P).
CM4P undertook a comparison of the major loyalty options, and compared them relatively on the basis of cost (both set-up and running costs), the amount of customer information acquired (the percentage of target market and percentage of wallet spend), and the income and ROI that can be derived.
The white paper identifies four key success factors for obtaining a sustainable competitive marketing advantage through best practices in customer management:
- Obtaining relevant information on the maximum number of customers in the target market group.
- Gathering data on demographic, socio-economic, lifestyle and transactional information.
- Developing channels of communication, direct to the customer, that are highly cost-effective relative to competitors.
- Develop barriers to entry that will effectively block competitors from copying the initiative.
"UK businesses will need to be proactive in positioning their customer management offer in order to stay ahead," noted Mike Atkin, chief operating officer for CM4P.
According to the white paper, one of the biggest advantages of a coalition loyalty programme is its attractiveness to the consumer.
CM4P's own research shows the relative point-earning ability that a customer has in a coalition programme compared with other competing programmes, demonstrating that using a coalition loyalty programme (such as Nectar or Air Miles), each member can collect between three and ten times as much reward value in one year (compared with other competing programmes in the marketplace in the UK).
This extended reward-earning capability is driven by two main factors:
- The coalition loyalty programme customer can collect value from market leading companies across all major sectors, including banking, fuel, supermarket, hypermarket, telecommunications, restaurants, clothes, books, CDs and others.
- The reward offer can be purchased at around 50% of its perceived value, and this benefit is passed on to the customer (whereas competing programmes usually buy rewards at around 10% - 20% off, with this benefit often not being passed on to the customer).
The extremely attractive customer value proposition is what often drives coalition programme membership levels to 50% - 70% target market penetration.
"Coalition loyalty programmes are really one of the most efficient and sustainable options for retailers to consider," said Peter Wray, Chairman for CM4P.
The white paper, which can be requested by e-mail from CM4P (using the e-mail address given below), paints a broad picture of the customer loyalty landscape from a customer management point of view, including a review of the UK loyalty marketplace, along with an examination of customer management strategies and options, the benefits and operation of coalition loyalty programmes, risk evaluation, and competitive response.