Are Loyalty Programs Really Loyal To Your Business?

Published by MBA Skool Team, Published on December 01, 2012

Salary. Pocket money. Summer internship stipend. What do all these have in common? They lead us to embark on our next trip. Our shopping trip. You open your wallet, check your cards, dress up well and are raring to go. Your wallet has some other interesting stuff – those oh-so-important loyalty cards. You can now shop for your favourite stuff and also earn some (brownie) points. But wait a minute. You have a gold card from one store, a platinum card from another and hey, don’t you remember that you just got a new card from the store next door?

I set out to ask people about their expectations from loyalty programs. Some said that they would prefer discounts and special offers, whereas others said that they would like to get access to certain special products which are otherwise not available to the rest. Some were not amused because they felt that every third customer has a loyalty card. So too much of anything is definitely bad.

Around 2.1 billion loyalty memberships are found in US today. As on 2009, there were

20 million loyalty program members in India. Acquiring new customers comes at a cost (and efforts). It is 5 times costlier than retaining customers. Good products, perfect ambience, competent prices and offers and an excellent overall shopping experience are indicators of repurchase. Loyalty programs form a part of it.

Keeping in touch with customers via their preferred media is just the beginning to this never-ending relationship. A form, few details, sometimes a little money and you are done. You have got yourself a potential loyal customer. Because every time they look at the card, they remember your store, your service and even have a glimpse of your products in their mind. They might also go on to talk about their experience and lead to word of mouth marketing. Referral schemes are used for the same, wherein points are gained for referring others.

We’ve to focus on the right strategies for the right customers. Customers have transitioned from being product-seekers to experience-seekers. They want to feel special, have good quality products and thus the company’s role of maintaining loyalty just doesn’t end here. Loyalty programs themselves might not be enough if you start to randomly up-sell and cross-sell your products and bombard the customers with information. Better sense and increased profits will prevail if you send reminders and updates about related products so that the customers will be compelled to buy them, but at the same time remember to not be pushy. Now imagine doing all this again for a new customer. Wouldn’t it be easier to convince your existing customers about your company now that they have started becoming familiar with it?

Some customers having hundreds of loyalty cards end up using only 1 or 2. What influences the use of certain cards? Try explaining why you go to the same restaurant frequently to have your favourite Chinese cuisine. Is it just because of low cost, good food or is there something special about the service? No, it’s a combination of all this and much more. Likewise, handling a loyalty program just because everyone in the business is doing so won’t get you anywhere. Your good products and customer service will.

Ease of implementation at company’s side and ease of use at customer’s side are important. Recently, I was at a cash counter. Having forgotten my card, I had to spend 10 minutes giving my details. I gave my name, which apparently was not properly fed in the system, followed by my number which again was found to be missing (I wonder how!) and then I had to finally call my sister and ask her for my card number. After all this, I got to know that I had gained only 20 points for the huge sum that I had spent. So much for my loyalty! Sometimes, scanning problems and a not-so-clear policy of redeeming the points lead to frustration. But now many systems are automated and loyalty programs are carried out without the need for a physical card.

Loyalty programs give a better idea about customer preferences, lead to improved customer relationships, bring more footfalls, help in top-of-the-mind-recall, lead to sales promotions, faster inventory turn-around and increased sales. But an overdose can lead to diluted brand value, customer stalking, increased expectations from customers to have round-the-clock offers, a temptation to shell out more money and misuse of personal information to name a few. But then again, success depends upon how a company is able to balance the pros with the cons and build and nurture a profitable and long-lasting relationship with customers with loyalty programs, or even otherwise.

This article has been authored by Meenakshi Nilakantan from KJ SIMSR.

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