Effectiveness of Loyalty Programs
Loyalty programs are very common today and are run by almost all leading brands. With growing competition and more and more choices becoming available to the customer, the importance of loyalty initiatives has increased many folds.The realization that it is more crucial and cost effective to retain an old customer than acquiring new ones, is coming steady and fast on incorporates.
Many incentives like loyalty cards, rewards cards, points cards, advantage cards, club cards and holiday trips are being offered and a lot of emphasis is placed on rewarding the loyal customers. These loyalty programs are to be carefully planned and closely monitored. Their performance is an important indication of the performance of the brand as a whole in terms of product, service and customer satisfaction.
Customers today can be broadly classified into two categories. The first kind of customer is averse to change and is less experimental in nature. Winning the loyalty of these customers is very important. Acquiring them would be difficult but they turn out to be the ones who sustain a long relationship with the brand. They are less likely to be easily dissuaded or carried away by new brands coming into the market. They only expect consistent product quality, good after sales service and proper reddressal of grievances. Loyalty programs do not necessarily modify their behaviour to a great extent.
The other set of users have a wide range of options to choose from and would continue to go for the brand in future only if they get additional benefits out of the purchase. Such customers do not share an emotional bond with the brand and a small slip on the part of the brand can make them switch loyalties. Here the brand has to be extra cautious in handling such sensitive customers. Another important factor is the word of mouth that would be spread by these customers when they feel betrayed or cheated by a brand. These customers are very sensitive when it comes to price and any additional economic gains that can be garnered in the deal.
Instead of just following the trend of loyalty programs, it becomes important to understand the customer and his/her preferences. Loyalty programs might do no good when it comes to customers who get easily carried away. There might be situations where a company ends up spending a huge amount on loyalty initiatives and very less is achieved out of the initiatives. Like all marketing tools, anything and everything might not hold good for all kinds of products and brands. And this extends to kinds of customers as well.
Loyalty programs and all initiatives to retain customers would be effective only if it is ensured that the product offerings and associated services are as per customer expectations and meet his needs.
In both the types of customers, I feel that the outcome of the results of the loyalty program might not be as useful as it seems compared to the costs incurred on these programs.
The thing that should strictly be kept in mind is that no scheme and no additional programs would be effective if the product's quality deteriorates or it doesn't meet the expectations of the evolving customer needs. Only innovation and better product quality would remain the fundamental and underlying means for being an effective market player in long run.
Comments
I agree with the concern raised by you. I believe even the kind of loyalty programs we often encounter, most of them have too many *(conditions apply) to them. If I talk from Indian retail scenario, mostly they are sold at billing counters and the agents are not well informed on the same.
Posted by: Nishith Gupta | May 28, 2010 6:18 AM
I enjoyed this post and it was well written. Your last paragraph rang true in terms of product quality -- I can't help but think of the airline carriers in the United States and how far they've slipped in terms of their quality, and how I am less swayed by their loyalty programs now. Good lessons for all in here.
Posted by: Scott Wallask. | May 28, 2010 1:48 PM
I have a slightly different take on this. Loyalty programs have become transactional and you tend to be in the program only for the rewards and more often than not there is no emotional connect. But its a win win for the Customer and the Business.
Posted by: Vikas Kasturi | June 1, 2010 5:32 AM
I agree with Anushul on the fact that loyalty programs do not have much RoI as of now in the retail industry. Most of them are run around point of sales and no proper analysis goes into the data gathered out of this.
Loyalty programs do have a huge potential though. Martins, a grocery chain which recently took over a Virginia based grocery chain, Ukrops, lets users access their data online and helps them plan their shopping from comforts of home. This also gets them valuable data on the local trends and offer products/coupons/discounts specific to the area.
In my opinion, using the data gathered from the loyalty programs holds the key to their success or failure
Posted by: Anand Lonkar | June 2, 2010 4:19 AM
Thanks for the comments on the blog.
With respect to the above comments as posted by Vikas I am of the opinion that at the end of the day rewarding the customer is also a tool to retain the customer in the long run. The point I am trying to drive is that if the product itsef is upto the mark and is able to satisfy the customer then to my view the loyalty programs might not be major differentiators.
However loyalty programs if used for the right set of customer and for the right product might bear fruits in long run.
Posted by: Anshul Tiwari | June 14, 2010 6:10 AM
I am handling loyalty program from quite sometime. To my understanding loyalty programs in India are not understood by most of the customers or not explained properly by corporates somehow we lack in pitching it. Some of the corporates like Maruti suzuki has one of the best loyalty programs and i wont hesitate to write that if one compares it is in top 3 among auto companies across the globe.
Posted by: Nitin Kumar | June 14, 2010 8:31 PM
I am of the opinion that the loyalty program of Maruti was effective or proved beneficial only because Maruti as an automobile giant catered to the chnaging customer needs. Had it kept its original model/services and not evolved with time it might have suffered the same fate as Ambassador or Fiat in India and eventually faded into history. The reason why people stick to Maruti is 1) Share a bond with the company 2) Product is well suited for Indian roads 3) Meets the customer requirements in terms of look, power, speed, efficiency etc.
Had Maruti not lived up to these expectations, the loyalty programs could not have been able to retain even the best or the most loyal of the customers.
Posted by: Anshul Tiwari | June 15, 2010 7:52 AM
Agree with Anshul. As she mentioned that the expectation and inovation is the two most import things to sustain a product into the market in long run.
Posted by: Vijendra Rajput | June 16, 2010 1:00 PM
Dear Anshul,
You pointed right points. I would like to add to your opinion particularly for auto industry as I dont have much of an idea about software giants that Maruti is on top because of
1) Largest network which is key to success otherwise most of the cars today are good
2) Low maintainance cost
3) Highest retention value which is by and large not looked upon by many bigger auto majors in India.
4) Customer satisfaction index.
I wont be able to mention here but it is beyond the wild imagination of an individual that to what extent Marutians go to satisfy the customers.
THis is how people come back to Maruti again and again eventhough they know there are other competitors also but not up to the mark vis-a-vis.
One can guess because to win 10 years in a row customer satisfaction index is a real challenging task.
Cheers
Posted by: Nitin Kumar | June 16, 2010 7:54 PM
Interesting comments on Loyalty,I would like to share my view on this.
Basically though for any product Quality holds the key as you have mentioned these Loyalty programs acts as a differentiating factor for your product in Market and do offer an opportunity for you to engage with your customer even after they complete thier purchse cycle and this is one of key area in Marketing research and it gives ample space to Position yourself in a competitive market along with the high standard offering that meets the customer needs.
Posted by: Arun Kumar Ganapathi | August 5, 2010 5:24 AM