Brand loyalty was put to the test during the recession as hard economic times encouraged a consumer culture of promiscuous shopping, according to Andy Wood, managing director for GI Insight, who explains how the data gathered by customer loyalty programmes has come to the rescue.
One way that wise marketers have been able retain customers, while still using their budgets wisely, is to make use of existing loyalty programmes and customer data to better understand their customers' needs and shopping habits during the recent turbulent financial period. This has also meant that they are in a better position to develop strategies for customer retention once the downturn is over and consumers consider returning to their normal stores, brands and service providers.
Loyalty schemes are a growing phenomenon. In 2008, 41% of the top 250 UK companies operated a loyalty programme - more than double the number 10 years previously. Businesses are clearly recognising the value of having a scheme in place. In fact, research conducted by GI Insight in 2009 revealed strong support for loyalty schemes from finance directors and managers, almost 20% of whom believed that companies with a loyalty scheme would come out of the economic downturn with a 'significant competitive advantage'.
This could explain why, despite squeezed marketing budgets, some firms actually launched loyalty schemes at the height of the recession. HMV, CDWow and Play.com all launched loyalty programmes and Tesco relaunched its Clubcard scheme. Clearly these companies saw the benefit of doing so - but the benefit is not limited to individual companies or brands; various towns across the UK, including Ringwood in Hampshire, Newquay in Cornwall, and Ilkley in Yorkshire, launched community-wide loyalty schemes in a bid to prevent additional High Street retail closures.
But, with the recession buffeting the resources of many businesses in many sectors, the question that most marketers would like answered is simple: is an investment in loyalty schemes still paying dividends, despite the down economy?
Given the economic climate over the past few of years, GI Insight wanted to find out how loyalty activity was being perceived by marketing decision makers. Given the wealth of newly launched or extended loyalty programmes it came as little surprise that 71% of marketing decision makers believed that loyalty schemes were more important to successful business during the recession. Utilities and telecoms (97%), banking (87%) and retail (74%) all gave loyalty schemes a sound endorsement. However, some sectors clearly indicated that they had failed to fully recognise the importance of loyalty schemes.
Others, such as travel and transport (60%) and hospitality (71%) - both early adopters of loyalty schemes - had other reasons for coming below average. The study found that marketing decision makers in these sectors are likely to see the sophisticated and highly effective loyalty programmes in their industry as fundamental tools - an essential requirement to succeed in any economic climate rather than extraordinary recession-busting measures - and are likely to have seen them used to their fullest. Many organisations in these two sectors also chose to concentrate energy and resources on price promotions, which, when combined with an already sophisticated approach to customer communications, could prove to be a more valuable point of differentiation during the recession.
Despite the high level of importance given to loyalty scheme, there still seems to be a lack of commitment to the integration of loyalty schemes with other marketing activities. By integrating all activities a business can ensure consistency of message and the complementary use of different channels, which can help maximise the brand's impact on the customer and help to drive greater customer response.
Half of the survey's respondents said they did not believe that the vast majority of loyalty schemes are fully integrated with other marketing activities. According to Wood this is a real danger: "If the various marketing activities are being carried out independently of one another, a business could find it very difficult to communicate effectively with their customers through a consistent and coordinated approach that strikes the right tone and achieves satisfactory return on investment. This could be problematic as the UK exits recession and companies that fail to integrate marketing activities - especially when it comes to existing customers - risk being inefficient in their communications to customers and hurting the potential ROI of their campaigns."
Nevertheless, some businesses have positioned themselves to come out of the recession with a strong, integrated approach to marketing. However, even if they are well-placed to do so, marketers must not leap at the opportunity to start prospecting again without first thinking about how to treat new customers once they start spending. Often a new customer will spend once and then never again. However, it is in these early stages that it is most vital to nurture the customer relationship. Every effort should be made to turn that new customer into a long-term, loyal customer who can then be encouraged to spend more and spend more often.
But existing customers should always come first, no matter what level of attention is being given to prospects, Wood concluded: "Neglecting those who are loyal to you can lead to the loss of customers before new ones have even been recruited. So businesses that have invested in loyalty schemes over the past two years and integrated their marketing activities will be much better placed coming out of the recession - as long as they maintain their focus on existing customer. If they do not drop the ball when it comes to retention then their investment in loyalty schemes and database marketing will actually help when it comes to prospecting by informing their new business campaigns and helping them to target more effectively."
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