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Interest in customer loyalty systems has never been more avid. After a number of years when such systems always seemed to be on the brink of taking off - but never quite managed to reach 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 in the same sector appears to be ?doing something', or fear that the main competitor might steal a march by implementing a loyalty strategy, the key consideration is whether such a system can be cost justified. Will it measurably help the retailer in his bid to build long term profitable relationships with his customers? Can the investment required in a sophisticated customer loyalty 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 the implementation of a customer loyalty system.
The Driving Forces behind Customer Loyalty
A key reason for the increased focus on customer loyalty has been the changing role of the manufacturers. In the past, loyalty has predominantly been focused on a brand name. Manufacturers invested large amounts of time, money and creative energy on promoting their products, whilst all the retailers had to do was have a store in the right location, stock the brand-leading products - and watch the customers stream through the doors.
Nowadays life is tougher. The emphasis has switched, such that there is no longer such a comfortable relationship between the manufacturer and the retailer. Now, in fact, there is increased competition between the two parties, including such areas as the introduction of own-branded goods by an increasingly large number of retailers.
In a bid to increase revenue, many retailers opted for quantity and opened new stores wherever there was 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 won hands down.
Today's retail environment is one where the customer is king, once again. Retailers really have to sell to 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 systems make 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 impractical to believe that a customer will, for example, always be able to shop in the same supermarket, fill up at the same garage or even like the latest season's fashion offerings. In any case, competition is not only a fact of life, it can also been seen as desirable in that it gives a retailer the opportunity to demonstrate such ?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, no comfort can be taken in achieving seven out of ten visits if the three visits to the competition incur most of the expenditure. This is often the case with some outlets which are treated as convenience stores for just a few everyday items, whilst the major purchases are made elsewhere. Off-licenses are classic example of this phenomenon: used at the last minute for a bottle of wine for a dinner party, but missing out on the bulk drinks purchasing, which is made from the local supermarket as part of the general food shopping trip.
- 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.
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