Tuesday, January 29, 2008

Loyalty Programmes and Personalization

Despite the problems listed above, it does seem that relationship marketing at east has the potential to enhance customer satisfaction. Although it is easy to be cynical, a satisfied customer is more likely to be loyal than one who is not. A loyal customer base has a number of benefits to a company:

  • Higher returns will accrue, from repeat sales over time.
  • Increasing levels of competition means that service quality may be the only differentiating factor between otherwise similar companies.
  • Higher costs are associated with recruiting new customers than with managing existing ones (because of the need to conduct credit checks, take up references and other administrative tasks).
  • It provides scope for cross-selling.
  • It creates possibilities for strategic partnerships.
  • Loyal customers will recommend the company to others by word of mouth.
  • Promotional costs to acquire new business are reduced.

Loyalty programmes (also known as 'reward schemes') can be introduced to increase loyalty. For example, successful programmes have been introduced in recent years by airlines such as BA and supermarkets such as Tesco. The costs of the rewards given away can be more than offset by the additional business gained through repeat or additional purchases. For example, Tesco's Clubcard loyalty programme now covers more than 14 million customers, and special offers can be customized, based upon analysis of transactional data in order to enhance the brand image and build trust. By 1996, 200 million in-store purchases per day were being tracked by the programme, and over 5,000 distinct customer segments identified, each receiving personalized coupons. Profits have grown from £500 million in 1995 to nearly £1 billion in 2000 (www.ltol.com). When Tesco began selling goods online (admittedly after a shaky start, when the company's computer systems were not sufficiently integrated and orders had to be rekeyed manually!), the company was a 'known quantity' in comparison with the unproven Internet `pureplays' that were setting themselves up in competition. Additional Clubcard points were awarded for online purchases, and Tesco now has over 1 million online customers. In 2000 it sold half of all online groceries in the UK (www.datamonitor.com). It dominates the home delivery market to such an extent that many competitors have accepted defeat. Safeway, for example, decided in 2001 to stop selling its goods online and concentrated instead on refurbishing and upgrading its retail outlets.

Internet 2010

Another popular method of boosting loyalty is personalization. Tesco is moving in this direction with its online service, which is now becoming more sophisticated in its analytical capabilities in terms of suggesting particular products or special offers that might appeal to individual customers based upon their purchase history. Personalization software allows the name of the user to be incorporated into the Web pages, any previous transaction details to be displayed, and related areas of interest to be flagged. Personalized email messages can be distributed to highly targeted groups of customers at a very low cost. This type of marketing is also being driven by research such as that by Cyber Atlas (www.cyberatlas.com), which established that Web users who configure, person. alize or register on Web sites are more than twice as likely to buy online as those who do not. A combination of a reward scheme and personalization can therefore be a powerful tool to drive loyalty. Such mechanisms are of course ideally suited to online transactions, and this aspect will be considered in more detail in the next section.

As with relationship marketing as a whole, there has been a lot of hype recently claiming that personalization is a panacea for success. This ignores the fact that in many circumstances, customers are quite happy to receive a 'mass market' approach, and find any degree of personalization an intrusive invasion of privacy. Examine the mini case study below and make up your own mind — do you find such approaches valuable or intrusive? Why?

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