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CUSTOMER LOYALTY - THE BUSINESS CASE
It is imperative that a clear business case is established before a Loyalty Programme is developed and implemented. Many programmes are launched as a result of competitor activity and lack clear objectives, a weak CVP (Customer Value Proposition) and, consequently, fail.
MJA Associates have researched many global programmes to identify the strengths and weaknesses of campaigns and to evaluate the principal benefits and costs associated with Loyalty strategies. This research makes a compelling argument for Customer Loyalty, although the findings also highlight some major pitfalls that will reduce the commercial benefits of a Customer Loyalty Programme.
Commercial Benefits
Many Loyalty schemes can demonstrate increases in revenues for operators and it is evident that loyal customers tend to spend more than their promiscuous counterparts. As is usual in almost all businesses, the 80-20 rule applies and it has been shown that a small percentage of customers account for a high percentage of profit. Therefore it is proven that having a loyal customer base is one of the most important commercial assets a business can have.
Research indicates that loyal customers spend twice as much as promiscuous shoppers in their "first choice" store and in the grocery market loyal shoppers also tend to have larger shopping budgets.
There are several other key benefits of loyalty schemes including improved communication with the customer, the ability to track and monitor shopping habits and influence customer behaviour, improved promotional activity with focussed and targeted campaigns and an improvement in the supply chain efficiency. Customer data that is well-collected and analysed can be used to reward loyal customers to ensure that "marketing spend" is targeted effectively.
NB Only collect data you need and use the data you collect.
It is necessary to be aware that the impact on sales and profit must be closely monitored when evaluating the effectiveness of a Loyalty Programme. The MJA Associates research has shown that a proprietary (store based) Loyalty scheme, if run efficiently, can break-even with turnover increases of 3% to 4%. There are many factors to evaluate when considering a Loyalty campaign and MJA Associates has a structured approach to evaluating and assessing which Loyalty Strategy is best suited for your business.
*The ProFIT Model calculates ROI based on assumptive data. An automated tool developed by FMI, it shortens the time intensive process of calculating ROI. It standardises ROI calculation and establishes a systematic approach to setting measurable objectives. The ProFIT model requires only a series of key inputs and, because it is dynamic, allows us to test multiple scenarios.
Potential Costs
It is very important to recognise that Loyalty Programmes must be a long-term commitment and will often require an extended financial obligation. Loyalty strategies must be analysed for cost as well as revenue benefit and research indicates that many costs need to be considered as part of this analysis. As well as the Rewards and redemption costs (estimated to be around 80% of the total cost), there is the cost of IT developments, data collection and analysis and HR investments in a Programme Management team.
Why Programmes "Fail"
Recent research by Colloquy has identified that, out of the 2000+ programmes that they have monitored since 1990, 62% are still in operation although many have "evolved" or had "major" modifications and some 7% have been totally re-launched. Therefore 38% of programmes have "gone by the wayside"! Some may have been shut-down due to acquisition issues but there are some significant and foundational reasons why many have failed.
The main 3 Design Flaws shared by "failed" programmes are :-
- No Bonussing/ Flat Funding Rate.
- No/ Very Weak Soft Benefits
- Single Tender system for Transactional Data Collection (see "Invisible Customer")
The 2 other reasons for failure were :-
- No Dialogue with the Member Base
- Poor or Little use of the Data Collected.
Final Comment
It is essential that a Loyalty Marketing Strategy has clear objectives from the outset and that these are part of the Business Culture and embedded in the broader context of the Business Strategy. When developing a Loyalty Programme there should be, not only, Board Approval but a key Board Sponsor should be actively involved in the process.
MJA Associates has a structured approach to evaluating and assessing which Loyalty Strategy is best suited for your business.
Please contact Mike Atkin +44(0)7887 661750 or email him at: Mike.Atkin@MJAAssociates.com |
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