Cost Justification: Profitable Customer Loyalty

PROFITABLE CUSTOMER LOYALTY- COST JUSTIFICATION -
Chris Jacobs, Managing Director, Business Assyst Ltd
Interest in customer loyalty systems has never been more avid. After a number of years whensuch systems always seemed to be on the brink of taking off - but never quite managed toreach expectations - recent year have seen a real and dramatic increase in their uptake.
Putting aside the superficial reasons for installing a loyalty system, such as everyone else inthe same sector appears to be 'doing something', or fear that the main competitor might steala march by implementing a loyalty strategy, the key consideration is whether such a systemcan be cost justified. Will it measurably help the retailer in his bid to build long term profitablerelationships with his customers? Can the investment required in a sophisticated customerloyalty system be justified on the basis of anticipated increased profits?
This paper explores the issues which need to be addressed in order to cost justify theimplementation of a customer loyalty system.
The Driving Forces behind Customer LoyaltyA key reason for the increased focus on customer loyalty has been the changing role of themanufacturers. In the past, loyalty has predominantly been focused on a brand name. Manufacturersinvested large amounts of time, money and creative energy on promoting their products, whilst all theretailers had to do was have a store in the right location, stock the brand-leading products - and watchthe customers stream through the doors.
Nowadays life is tougher. The emphasis has switched, such that there is no longer such a comfortablerelationship between the manufacturer and the retailer. Now, in fact, there is increased competitionbetween the two parties, including such areas as the introduction of own-branded goods by anincreasingly large number of retailers.
In a bid to increase revenue, many retailers opted for quantity and opened new stores wherever therewas a location and an apparent opportunity.
In a marketplace saturated with 'lookalike retailers', the extended recession was the final straw.Retailers had to completely rethink their strategy for survival, let alone growth, and the customer wonhands down.
Today's retail environment is one where the customer is king, once again. Retailers really have to sellto their customers. And they have to make every possible effort to ensure that once a customer,always a customer.
Advances in technology have helped the cause of the beleaguered retailer. Customer loyalty systemsmake it much easier to recreate the type of close relationship used to such effect, prior to their demise,by the traditional corner shop and its regular shoppers.
What is a loyal customer?No retailer can ever expect, or even desire, to achieve one hundred per cent loyalty. It is impracticalto believe that a customer will, for example, always be able to shop in the same supermarket, fill up atthe same garage or even like the latest season's fashion offerings. In any case, competition is not onlya fact of life, it can also been seen as desirable in that it gives a retailer the opportunity to demonstratesuch 'differentiators' as a superior service or, perhaps, more flexible financing options.
A loyal customer is one who visits a particular retailer more often than the competition. However, nocomfort can be taken in achieving seven out of ten visits if the three visits to the competition incur mostof the expenditure. This is often the case with some outlets which are treated as convenience storesfor just a few everyday items, whilst the major purchases are made elsewhere. Off-licenses are classicexample of this phenomenon: used at the last minute for a bottle of wine for a dinner party, but missingout on the bulk drinks purchasing, which is made from the local supermarket as part of the generalfood shopping trip.
© Copyright Chris Jacobs 1 of 7PROFITABLE CUSTOMER LOYALTY- COST JUSTIFICATION -
A retailer must seek to gain the highest proportion of the customer's annual expenditure - and then,most importantly, retain this customer as long as possible to reap the maximum benefits.
MeasurementIn order to justify a scheme and prove that it really is working, it is essential to have a number of metricsto measure the performance of the system. This includes such statistics as n... [download for more]