What drives different levels of customer loyalty?

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By: Wise Marketer Staff |

Posted on June 28, 2010

What drives different levels of customer loyalty?

While most people would agree that loyalty is a good thing -  whether in terms of personal relationships or in choosing who to do  business with - but there are always some customers who benefit from  membership of a loyalty  scheme while others simply fall by the wayside, according to Anamaria Chiuzan, senior marketing manager for customer insight and loyalty at The Logic Group.

Despite the apparent success of many loyalty programmes, recent debate surrounding their usefulness and validity have left many marketers questioning the true purpose of rewarding customers' loyalty.

With approximately 85% of households in the UK owning at least one loyalty card (TNS Market Research), while more than half forget to redeem their rewards, perhaps one factor fuelling the debate is a disconnection between customers' expectation of how their loyalty should be recognised and the reality of what they receive.

Similarly, it's important for retailers to realise that loyalty schemes are a long term platform on which to grow a customer base and repay loyalty by providing rewards, redeemable both in and out of store, that will be valued by the individual.

According to Chiuzan, many businesses have forgotten the ultimate reason for implementing reward programmes. Equally, for consumers, the initial draw of joining a loyalty scheme may quickly become a distant memory. If used correctly, it's very easy for customers to make savings and reap rewards. However, many retailers have jumped on the loyalty programme band wagon and issued loyalty cards without considering how the scheme will be used to its full advantage. As a result, consumers often feel overwhelmed by loyalty cards and the idiosyncrasies of the points systems of each.

One by-product of the saturated loyalty market is that many of us now feel happier when simply winning rewards, as opposed to the satisfaction to be gained by earning them. Nonetheless, loyalty rewards can have the same affect if they are made relevant and personalised to the individual consumer. To achieve this most loyalty schemes need to be re-vamped, as some businesses have simply launched loyalty cards with a 'that will do the job' mentality.

A loyalty programme is not just a tactical solution, rather a long term strategy with building frequency and driving customer loyalty and satisfaction at its heart. Loyalty programmes aren't just about quick wins such as sales and discounts; they enable retailers to manage customers and their profitability, while rewarding them with incentivised offers that will ultimately grow the customer base.

As a result of the recent economic lapse and consumers subsequently becoming more cautious about spending, many retailers, specifically grocery stores, entered into an aggressive price war. More recently, reports of bumper Christmas sales for those retailers that didn't have loyalty schemes, are potentially indicative of the appeal of low prices and special deals. Conversely, stores that did implement loyalty schemes also saw sales rise while simultaneously benefitting from the information supplied by specific purchase behaviour (i.e. who likes cranberry sauce and would appreciate an extra jar).

Loyalty schemes are successful in improving and maintaining customer satisfaction, on the other hand, sales are about attracting customers on a short term basis; once items of particular preference are no longer under offer, customers are likely to shop elsewhere as they have no feeling of loyalty toward the store. A downside to the sales-focused approach that retailers will undoubtedly feel the impact of long-term.

Retailers without loyalty schemes in place have to rely upon what amounts to a straw poll before going with the majority vote, as was the approach evidenced in a recent advertising campaign by Asda. This tactic is arguably unreliable and only benefits the customer if they belong to that majority group. If retailers dependent on sales believe this is the best way to drive profitability, they risk losing those customers who are neglected by the process and, in turn, may find it difficult to attract new customers (as many are members of loyalty schemes).

The other part of the great loyalty card debate focuses on the question of why loyalty programme members tend to benefit while other customers do not. Retailers with successful loyalty programmes are a result of access to customer data. Many customers may be loyal to a brand but prefer not to share their personal details, and as a result they are ostensibly never rewarded.

Others may argue that we are held to ransom, having to supply all of our data and shopping habits in order to receive a reward. However, without this data, there is no way of knowing who the most loyal customers are, and how many visits a customer will make. Leading supermarkets that did report good sales figures over the Christmas period were economy brands, such as Asda and Morrisons, all of which benefitted from the economic downturn and its impact on shopping habits.

Surveys to determine which products to discount only represent the majority view. Therefore when there are discounted products, it is only useful to you if you were part of the majority. Although recent economic pressures have led to price dominating over ensuring customers feel valued, customers will feel no loyalty and continue their search for new places to get more for their money elsewhere.

The customer experience is key, Chiuzan argues. So too are the relevancy of rewards - and the most successful loyalty programmes are those that combine relevancy with immediacy. What really matters to customers, in the context of loyalty programmes, are the actual rewards: they need to have high-perceived value, for example a personalised treat or something that can be redeemed. It's ultimately down to the retailer to decide upon an award redemption strategy, whether it's something to use in or out of store (theme park passes, theatre tickets). By ensuring that the rewards are achievable and relevant, the customer experience will be enhanced and the loyalty scheme will seem both relevant and useful to the member.

Creating a loyal customer base is critical to any organisation that relies upon repeat business - and it's hard to think of many that don't. There are two main areas of focus that all marketing activities are based on, the first of which is attracting new customers (customer acquisition), and the second of which is ensuring that existing customers become a source of recurring revenue (customer retention).

Retailers now need to adopt a smarter approach to loyalty and ensure that rewards are relevant and immediate (and not unobtainable). According to Chiuzan, "It is not about handing out loyalty points that take too long to transform into rewards and whose value customers don't clearly understand. However, the opportunity is there for retailers to ensure a carefully thought out and implemented loyalty scheme reaps the benefits in building a loyal customer base. Not only will this allow the retailer to boost sales figures, but will also create a more targeted and personalised service, something which all customers appreciate."

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