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Sales Eye - In search of the holy grail (15th March, 2004)

2013-02-19
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In search of the holy grail

15th March 2004

 

It's a well known fact that the 'holy grail' of any business is customer loyalty. Having spent so much time and effort getting a new prospect to try your product or service for the first time, it would truly be a tragedy to lose them.

 

"An Ounce of Loyalty is worth a Pound of cleverness"- Elbert Hubbard 1856-1915

 

It's a well known fact that the 'holy grail' of any business is customer loyalty. Having spent so much time and effort getting a new prospect to try your product or service for the first time, it would truly be a tragedy to lose them. That's why during the last few years, we have witnessed a virtual revolution in loyalty programs. It's an oft-quoted fact that the cost of winning a new client far exceeds the cost of maintaining a loyal relationship with a current customer. In short, loyalty pays.

 

Check for yourself. How many loyalty-related cards do you have in your wallet? A quick inventory of the Sales Brothers' portfolio unveils four airline frequent flier cards, a Coffee Heaven loyalty card, four Hotel chain loyalty cards, two rental car cards, a BP Partnership card, not to mention a handful of cards from various local restaurants, clubs and other service establishments. No, you don't need to be a global giant to organize a loyalty program.

 

Now, despite our affection for customer loyalty and loyalty programs, we must issue this warning: many loyalty programs are ineffective and do not create the desired effect. Hence, whether you are already running a loyalty program, or just thinking about one, its important that you get things right. Failure to do this will simply result in wasted resources.

 

Our company has been running loyalty programs for our corporate customers since 1999. We played a major role in the creation of the largest and most successful loyalty program ever launched in Poland. So we have more than a little experience in this area. We have seen huge successes and tremendous failures. Here's a quick summary of some of the lessons we've learned.

 

When loyalty programs make sense

Highly competitive environment. If you are Microsoft, with 90 percent market share, you probably don't need a loyalty program. Other marketing promotions are more effective. However, if you are in a brutally competitive market, then a loyalty program might make the difference your clients need to jump the fence over to your side - especially if your competitors aren't running such a program yet. And if they are, then you may need to hurry.

 

Relatively low point of differentiation. Products and services where it's difficult to identify tangible points of differentiation - such as gas stations and certain retail businesses - are ideal for loyalty. Surprisingly, many industrial companies, such as building suppliers, are also perfect for business-to-business loyalty programs. Some of our most successful clients have launched such programs for their corporate clients, something overlooked by a lot of companies. Loyalty is not only about consumers.

 

Frequent repurchase. Loyalty has to do with coming back again and again. Therefore products with frequent repurchases lend themselves well to loyalty programs. If you buy it often - gasoline, groceries, travel - then it can make sense in a consumer loyalty program.

 

Reasonably high annual purchase value. A consumer only buys so much bottled water a week, so a 'Kryniczanka' consumer loyalty program might require customers to drink 10 liters a day in order to receive a free key-chain after six months. That's not very enticing. However, a soft drink wholesaler might buy hundreds or thousands of liters of bottled water a week, and so a loyalty program aimed at them might be very effective for the manufacturer.

 

Once you decide that a loyalty program might make sense for your business, then you need to decide on the goals of the program. 'That's easy' you might say, 'increase sales!' But our experience, as well as a whole body of research, shows that success in loyalty programs has a lot to do with how specific you are with the program's goals, before you get started.

 

Goals for your loyalty program

Customer Retention. Maybe your competition has been effectively stealing your clients. Maybe there is a wave of new competitors who are aggressively marketing. Whatever the case, one common goal of many programs is customer retention. Don't lose those clients you already have. And a loyalty program is sometimes just the tool to do that. Sometimes it's the 'hard benefits' that attract them such as a new coffee maker. But more often than not, it's the soft benefits such as 'gold card member' status, or the free upgrades, or special treatment.

 

Increase spending. Getting your existing clients to spend more of their złoty with you is always an honorable goal. Perhaps these customers fly half the time with you and half with the competition. Getting just half of that other business is a nice boost.

 

Data Collection. A famous case study is the Tesco loyalty program in the UK. It was created to increase loyalty and increase sales, but one of the primary benefits was that afterwards, management had a much better understanding of consumer behavior. They knew how often their customers were shopping, when, what they were buying and how often repurchasing. The program provided a wealth of knowledge. In Poland, we have seen this as one of the primary benefits of the programs that are running.

 

Loyalty programs are persnickety and a lot can go wrong in them, so it's important that you go about it with great caution. If they work well, they can be one of the best marketing tools you've ever created - a true holy grail.

 

If you are seriously considering a loyalty program, we encourage you to take part in the fourth annual ECU Marketing seminar on Loyalty Programs on April 1-2 in Kraków. We will be presenting more of our views during the conference, so we look forward to meeting many of our readers there. Write to us at saleseye@lynka.com.pl for more information.

 

 

From Warsaw Business Journal by John Lynch, Matt Lynch -"The Sales Brothers"