The loyalty-based key to buying behaviour

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By: Wise Marketer Staff |

Posted on October 20, 2005

Approximately one third of the UK's major corporations are now beginning to make their loyalty schemes deliver more consistently across all channels of communication, allowing them to segment customers and discretely influence purchasing behaviour, according to research from database marketing firm Total DM.

Senior marketers within the top 1,000 UK companies were asked to quantify the success of different key sectors at providing a consistent loyalty scheme across all channels. Perhaps not surprisingly, the loyalty "pioneer industries" (i.e. credit card, retail, and travel) that are data-rich - and are under constant pressure to encourage more profitable behaviour - were felt to be the most successful at delivering consistent multi-channel loyalty schemes.

Credit card issuers, retailers and travel firms all scored well in this respect, with 43.2%, 42.6% and 37.8% respectively. On the other hand less loyalty-oriented industries are falling behind on multi-channel schemes, with utilities and insurers scoring only 25.6% and 23.7% respectively.

One size fits most
But the report doesn't suggest that all schemes should operate across all channels - rather that the channel mix should be determined by each company's own audience's preferences. For example, a very small proportion of some vendors' audiences have web access at home, while other company's audiences have no interest in a high street presence and want to deal with them exclusively by remote media such as the telephone or internet.

However, among the industry sectors studied by Total DM's survey, such audiences appear to be (and are likely to remain) in the minority. Most of the large companies observed simply need to cover all communication channels to satisfy the majority of their customers.

The popularity of loyalty schemes is unlikely to diminish, so the only way ahead is to keep the customer satisfied through the loyalty programme. In fact, according to research from Group 1 Software, the world is becoming generally more mobile and less loyal. In 2003 the all industries average customer defection rate was 16.9% per annum. In 2005 the annual average has grown to 19.1%.  As Total DM's report concludes, that's why more and more marketers are focussing on their customer retention and loyalty initiatives.

Five years from now
According to Andy Wood, managing director for Total DM, "There is a stark polarity between the best and worst performing industry sectors when it comes to managing loyalty schemes consistently across mail, phone, web, mobile and face-to-face. Sectors that have either become very data-rich or that are desperate for methods to encourage product/service usage, or whose markets have been disrupted and disintermediated by the web, are paying the most attention to multi-channel loyalty activities."

Wood predicts that, as alternative channels gain more traction by 2010, the majority of loyalty schemes will operate consistently across all channels, fulfilling the basic tenets of customer relationship management.

Main findings
The report, 'Swimming the Channel: A research study into multi-channel loyalty schemes', reveals some clear priorities among major UK companies:

  • One third of these companies are already making their loyalty schemes deliver consistently across all channels of communication with the customer.
  • Multi-channel loyalty is allowing an increasing number of companies to segment their customers properly and influence purchasing behaviour.
  • Loyalty pioneer industries are the ones to watch and follow.
  • Less loyalty-oriented industries are yet to delve into the data-rich world of multi-channel loyalty programmes, although a few such companies are already exhibiting what Total DM describes as "best in class" schemes.
  • Building societies and telecoms companies, which face creeping commoditisation and severe customer churn could very effectively use multi-channel loyalty initiatives to help cement brand loyalty. This would help reduce customer churn and improve existing customer revenues and profitability.

Multi-channel importance
According to Total DM, loyalty initiatives that do not embrace all channels are in danger of dissipating their appeal and effect, or even letting the customer believe that the loyalty programme is mere window-dressing. What should a consumer think of a call centre that can't use their loyalty card number to call up their details, or their recent purchase or warranty records? You can't expect a consumer to favour a retailer that can only handle points redemption in-store, and not by mail, telephone or online.

The proportion of multi-channel loyalty programmes already existing in the different industry sectors surveyed are as follows:

Industry sector Multi-channel %
Credit card issuers 43.2%
Retail 42.6%
Travel 37.8%
Hotels 32.4%
Building societies 29.4%
Telecoms 26.9%
Utilities 25.6%
Insurers 23.7%
Overall average 32.7%

Table 1: Top UK firms with multi-channel loyalty schemes
Source: Total DM

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