Wednesday, March 10, 2010

Loyalty Programs: Derive more value from loyal customers

Today, I have become a member of loyalty program of a big retailer. I was very happy to be member of loyalty program as they were offering instant discount of 10% on my total bill. This is my 8th such membership. I am already a member of Kingfisher, Jet Airways, Cross word, Lifestyle, Shoppers Stop, Pantaloon and Park Avenue loyalty programs.

Today, there is a wide array of reward programs in virtually every industry segment. It has become defacto standard in Airlines and Retail industries.As membership in such programs continues to increase, many firms are left wondering whether their programs buy loyalty and increase customer value, or simply add costs without securing repeat business.Lot of organizations have started offering this programs as their competition is also offering such programs.They do not know whether customer loyalty/ reward programs actually influence consumers to change their behaviors, and if so,which factors of a program have the greatest influence.

I am a loyal customer Life Sytle(Retail Chain in India) for past few years, and I am also a member of their loyalty program. I haven't seen any special treatment given to me as their loyal customer in past few years. You are treated like any other customer in the store. Probably, they are offering this program because their competition is also offering similar programs. I like to buy from Life Style because of variety of brands they keep in their stores. One of the striking difference between Life Style loyalty program and other programs is that there is no loyalty program tier like Gold, Platinum, Silver etc. I think program tiers can be powerful incentives and a good way to reward your best customers with the best rewards.

I am also a member of Pantaloon loyalty program in India. They do have various loyalty program tiers. They offer discount based on program tiers. I buy things from Pantaloon just because it is not available in a nearby retail store.They are offering discount on things which I have any bought from Pantaloon.Loyalty programs like this turns loyal customers into price sensitive customers,who are then more likely to defect for a lower priced offer.

Loyalty and reward programs are typically designed to achieve four objectives: increase customer spending, improve retention, maintain competitive position and capture new customer data. But do such programs actually achieve those aims? There’s no doubt that today’s programs yield useful customer data, but what about the other objectives?

In order to achieve other objectives of loyalty programs, you need to analyze transactional data of loyalty members and tweak programs so that you can achieve maximum results.

Typically, BI query and reporting system will help you answer the following questions.

How do people behave in a loyalty program over a long period of time? Do things change as they move through tiers? Does their spending accelerate or decelerate? How do these trends align with customer demographics?

You need business analytics system to address the following questions

"Which segment of customer is most profitable?"
"What products can you cross sell and up sell to this segment?"
"How do you retain most profitable customers and let go non profitable customers?"
"How do I efficiently attract most profitable customer to become member of loyalty program?"

The answers to above questions will help you build loyalty of your customers around brand and the buying experience they have with your organization. This will in turn help you increase revenue from loyal customers.

2 comments:

  1. You can improve your customer-retention by effective customer loyalty schemes. I prefer Bukoo Gifts ( http://www.bukoogifts.com/site/client-and-referral-gifts/ ); they offer a customer loyalty program that provides personalized programs based on your customer purchases.

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  2. Wonderful article on loyalty program which tells how customers value for any business. even http://meltag.com/ are providing software for loyalty programs and customer relationship management. Because, customers are the asserts for business to grow

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