The last ten years has been devoted to developing ways of gaining knowledge of and understanding customers, the next ten years will be devoted to developing ways of using the information. Those that do this effectively will win and those that don't bother will surely fail.
THE FUTURE OF THE LOYALTY INDUSTRYChris Jacobs
Business in the new millennium will be more competitive than it's ever been. There will be even more channels to market,even more opportunities for customers to purchase, even more offers and inducements, and even more opportunities forcustomers to switch. As customers' expectations continue to rise, and businesses repeatedly fail to meet them, the focuswill move away from acquisition to retention. Some customers are inherently loyal and predictable and some are moreprofitable than others - the 'best' need to be identified and kept, and the 'worst' left to bounce from one new competitoroffer to the next. The last ten years has been devoted to developing ways of gaining knowledge of and understandingcustomers, the next ten years will be devoted to developing ways of using the information. Those that do this effectivelywill win and those that don't bother will surely fail.
TO HAVE OR TO HOLD?Well, is the future of the loyalty industry as gloomy as some pundits suggest or is the business to consumer relationshipblossoming? Interestingly, it seems to be mainly retailers who argue the negative case most vocally. Banks recognize thevalue of long-term retention, FMCG companies recognize the value of brand loyalty, consumer credit organisations havemade a 'fine-art' of the 'lock-in', and TV rental companies have slowed down their decline with well planned customerretention strategies. If customer loyalty is viewed as a cost (Safeway and ASDA) then there will inevitably be disillusion-ment with the benefits, if the customer is seen as an investment (Tesco and Boots and now M&S) then the future of theindustry will be even brighter.
Of course, if the customer is to be seen as an investment then we must also be able to see a return. Learning a lesson fromthe category brand managers, the ROI (return on investment) of specific customer groups needs to be measured. The mostprofitable segments are often those that need the least attention whilst the segments requiring the highest marketing spendoften turn out to be the least profitable. Well-off consumers purchasing regularly by direct debit hardly notice the moneybeing sifted out of their current account and are, therefore, probably best left alone. How many people sign-up for Which?,read it only occasionally, but never get round to cancelling their subscription? How many people rent a television whenthey could easily afford to purchase a top model but just carry on for the convenience, despite the obvious savings thatcould be made?
Loyalty cards and points for prizes may have a finite future but customer loyalty is certain to stay for some time to come,in the disguise of, perhaps, more fashionable titles e.g. customer relationship marketing, data warehousing, micromarketing, customer retention programmes etc. The focus has moved from cards and points to the database and datamining to gain that deep knowledge and understanding of the customer. This is in danger of 'over shooting', however, asthe purists now argue for the inclusion of all data relating to the customer to be made available in a single (gigantic) datawarehouse. In some cases, this is resulting in solutions and projects that cannot be implemented in any timescaleacceptable to the marketers, if at all. Predictably, this is serving to continue the rift between the IT and marketingdepartments, and creating the need for more pragmatic solutions.
Loyalty programmes can be implicit. Individuals need not be aware that they are part of a programme and their loyaltydoesn't have to be rewarded with tangible benefits. After all, the rewards are the single biggest cost area of a scheme.Groups of customers can be singled out for special treatment with invitations to special preview days, the use of adedicated help line, and so on, or just be included in a targeted direct marketing programme. Explicit loyalty schemes,where the customer knowingly joins, inevitably attract some customers who are easily bribed by incentives, which arethose very individuals that can lured away by a better offer from elsewhere.
So, the endless debate of whether to use a magnetic stripe card or a smart card could be at an end for those organizationswhich are able to identify individuals' purchasing patterns from some other source. This can be from the traditionalsources of accounting systems, store c... [download for more]
