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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 for customers to switch. As customers' expectations continue to rise, and businesses repeatedly fail to meet them, the focus will move away from acquisition to retention. Some customers are inherently loyal and predictable and some are more profitable than others ? the ?best' need to be identified and kept, and the ?worst' left to bounce from one new competitor offer to the next. 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.
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 relationship blossoming? Interestingly, it seems to be mainly retailers who argue the negative case most vocally. Banks recognize the value of long-term retention, FMCG companies recognize the value of brand loyalty, consumer credit organisations have made a ?fine-art' of the ?lock-in', and TV rental companies have slowed down their decline with well planned customer retention strategies. If customer loyalty is viewed as a cost (Safeway and ASDA) then there will inevitably be disillusionment with the benefits, if the customer is seen as an investment (Tesco and Boots and now M&S) then the future of the industry 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 from the category brand managers, the ROI (return on investment) of specific customer groups needs to be measured. The most profitable segments are often those that need the least attention whilst the segments requiring the highest marketing spend often turn out to be the least profitable. Well-off consumers purchasing regularly by direct debit hardly notice the money being 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 when they could easily afford to purchase a top model but just carry on for the convenience, despite the obvious savings that could 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, micro marketing, customer retention programmes etc. The focus has moved from cards and points to the database and data mining to gain that deep knowledge and understanding of the customer. This is in danger of ?over shooting', however, as the purists now argue for the inclusion of all data relating to the customer to be made available in a single (gigantic) data warehouse. In some cases, this is resulting in solutions and projects that cannot be implemented in any timescale acceptable to the marketers, if at all. Predictably, this is serving to continue the rift between the IT and marketing departments, 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 loyalty doesn'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 a dedicated 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 are those very individuals that can lured away by a better offer from elsewhere.
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