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Who said, "Money Can't Buy You Love"? A useful metaphor, though, to help understand the true concept behind customer loyalty. Loyalty programmes are about developing sustainable, mutually beneficial relationships. Price incentives can generate a short-term sales uplift but will not engender long-term loyalty. Customer loyalty has long been recognized as essential, whereas (electronic) customer loyalty systems are still relatively young. The man in the corner shop has practiced the art all his life; the electronic version was invented to overcome the limitations of the human brain to remember more than a few hundred customers personally.
"Stock ?em High sell ?em Cheap", whether they be groceries, airline seats, hotel beds, electricity units, or whatever, works as long as your competitor doesn't "sell ?em cheaper". And it only works for a certain segment of the market; the segment that is, by definition, least profitable and most promiscuous. Most organisations eventually discover the benefit of focusing on the more profitable customers and the ones they can more easily keep.
British Airways has come full circle recently. After following a successful strategy of providing a superior service and focusing on the business traveller where the margins are high, it was distracted into attacking the low end of the market by setting up GO to compete in the cut price fares market. After pouring millions into fending off the likes of EasyJet, it found its margins in decline and its image tainted. It's now gone back to its old roots and once again focusing on the business sector.
As the utilities sector deregulated it became increasingly easy as a consumer to buy services from a number of different suppliers, most of whom sought to gain share with ever lower and lower prices. Many of these suppliers made quick wins, but equally quick losses as competitors adopted the same ?price as the carrot' strategy. How easy it is to attract disloyal customers who by their very nature defect very easily, but how difficult it is to sustain revenue growth against a background of a volatile customer base and decreasing margins.
The high street banks pay great attention to acquisition and, until recently didn't need to worry about retention. Never ones to miss a money-generating trick, they work hard to attract teenagers to open an account, and will offer all sorts of incentives to do so. Not surprisingly this yielded very little in the early years but it certainly paid off, more than handsomely, over the following forty or so years! This is not so easy any more as the choices are so wide, and the inducements to switch never greater. They now have to concentrate on after sales service and work hard at retention as well.
M&S now realize that loyal customers can't be taken for granted. Having established a unique position with a very loyal band of followers, which it exploited by pushing up prices (and hence margins), ignored what they wanted and we all know what happened next.
Follow the logic through, allow for the odd ?knee-jerk' reaction by the likes of Safeway, who stopped its ABC scheme to cut costs as a quick fix to declining sales, and most companies will eventually conclude that customer focus delivers in the long term. Hence, the value of the Customer Loyalty Industry. The customer now has even more choice, even more buying channels, even more offers and promotions and incentives. Customer loyalty has never been more important.
The industry has matured. It started with Green Shield stamps many years ago, moved to electronic points in the early 90's, and is now about collecting information, and, more importantly, using it. In the UK 75% of the adult population are members of a loyalty scheme. The benefits can be huge with some organisations claiming sales uplifts of up to 30%. Members of loyalty schemes, on average, spend four times that of non-members. These are the customers most likely to join in the first place, of course, but a scheme enables them to be identified, and then cherished. The biggest gains come from retention where a small increase can double the lifetime value of the customer base.
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