Loyalty Marketing- Every Little Help


I was getting so many requests to write a log post on loyalty marketing, though I read the Tesco Club Card book I didn’t have sufficient time to write something about how loyalty pays.  “Loyalty”, in day to day life, implies an unselfish belief in institutions or emotional commitment to friends.

A loyalty scheme doesn’t come cheap.  Based on a report into loyalty in year 2000, 16 major European retailers had a total sum of $ 1.2 billion tied up in annual discounts, and the situation is about the same in US. It is important set-up and running cost of a loyalty scheme has to deliver an acceptable return on investment. Even I can remember when I had a chat with one of a brand manager who works for an Airline Sri Lanka, he expressed that their loyalty programme is a loss. An implementation of a loyalty programme requires a high huge investment of time, IT and talent.  Even with all that I have seen several company struggles with this problem.

As I have realized if you want to run an effective loyalty programme you should invest in people. I have seen especially in Nolimit  and Arpico Sri Lanka the staff who are in the counter always encourage customers to use the loyalty card. Even Tesco believe that the staff have been an important ingredient in encouraging customers to take up, and then to use the Club Card. If a loyalty scheme is to be integrated with a business, it has to be the part of working lives of people who run the business.

If you are really doing loyalty marketing, well it will change the company structure and culture, because it encourages customers to contact the company as an implicit cause in the loyalty contracts it creates.  In my practical experience I have noticed the marketing department is suddenly challenged by the availability of a flood of new customer information. New knowledge means new skills, new ways of planning and working.

In Sri Lanka most of the leading companies are implemented loyalty marketing schemes. Still people might wonder whether it will work.  I would say it will work if firms adapt new ways of thinking. Tesco is the best example. Loyalty is defined into four currencies.

1 – Points –led

2 – Discount-led

3- Information led

4- Privilege –led

Point led is a generic description for scheme that encourages members to collect and spend their units of value, either at fixed or variable issuing rate, or at a fixed or variable redemption rate. Generally customers view these points very much as an operating currency. Travel agencies and Airlines use this scheme.

Discount led is a tiered or preferential pricing which is based on the simple proposition that retailers make it worth to be loyal.

Information led scheme is the interesting one. Loyal customers may value help and advice as much as cash.  A very good example for this is Tesco Baby club, which provides information at a time when potential parents really needs it.

Privilege-led underlying principle is that customers’ proxy access to services or facilities that have a rarity or that might be difficult to attain without the negotiating muscle of the programme or club they belong to.  But Mintel had found out that this method is increasingly under strain.

The biggest question someone can ask, does a loyalty programme pay? A mass membership programme is a long-term, expensive undertaking. But when it works, it repays the investment many times over and in many ways. Investment can be set-up not as additional spending; it can be much of replacements of traditional spend.  Using poor information about customers for loyalty marketing will put you in danger. Firms need to ensure the customer’s data is more accurate. Risk in loyalty marketing can be reduced if there is large amount of clear and reliable data. I strongly believe a well designed loyalty programme gives a brand a way to talk to individual customers on an adult-to-adult basis, rather than the old style of “WE know what you want” base.

Keeping old data, wrong data, lack of support from database team to manage the marketing and poor management in loyalty communication will not work anymore. So loyalty programmes create relevance for the customer, which may create an emotional bond, but will certainly crate a measurable outcome. Finally I would further say loyalty programmes are the starting point for deepening the customer relationship and turning them hardcore loyal.

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