Customer Loyalty Programmes – Do They Work?

By Carolyne Gathuru

There’s a big debate regarding whether customer loyalty programmes serve as a marketing venture with the key  objective to rope in new customers by providing assured freebies for continued patronage, or if they serve best as  customer experience initiatives seeking to keep loyal customers rewarded and to provide a ‘thank you’ for extended custom. That marketing and customer experience departments – that in general share numerous core activities –  should be harmonized is a subject for a different day. Nevertheless, in context of this discussion, customer loyalty  programmes irrespective of the originating brand’s agenda, serve to pique the interest of both existing and potential  customers.

Investopedia, the world’s leading source of financial content, defines a loyalty programme as a reward  offered by companies to customers who frequently make purchases. It goes further to say that loyalty programmes may give customers advanced access to new products, special sales coupons or free merchandise. Indeed, we have seen the burgeoning of innovative loyalty schemes in the country including: fuel stations offering reduction in fuel pricing per litre for loyal users with fuel loyalty cards, telecommunication companies offering accumulated points that subscribers may use to redeem airtime for texts, calls or data, loyalty cards at retail supermarket outlets that shoppers may redeem to make further purchases, clothing stores offering discounts for regular customers to enhance further visits, banks  adopting loyalty programmes that reward customers through a point allocation system based on banking transactions  done, flying miles accumulated from air frequent travel on specific airlines, and finally, shoe stores offering points for a  minimum amount  spent in the shoe store redeemable through purchase of more shoes or other items within the facility.

Peculiar

It is said that buying behavior is as peculiar to culture as it is to race, and without doubt in this country, the love for free  things is unparalleled. The lengths to which buyers go to ensure that free deals do not pass them, and they can  cash in on offers while they last is not only fascinating, but it would make for an interesting research topic. That this partiality for freebies cuts across the entire economic spectrum in equal measure, from the well to do in the green leafy  suburbs of the major cities to both the rural and urban poor is of keen interest. It is for this reason that loyalty      programmes have been well received from inception to date, and continue to attract interest with every initiative    launched. Whether the programmes are first successful and secondly sustainable in that they me their objectives and increase customer patronage, loyalty and retention, needs further discussion. All in all, Organizations need not jump  aboard the customer loyalty programme bandwagon without first putting into consideration what it takes to ensure  success.

Reward or customer loyalty programmes are only as good as the intention for which they are created. Before any corporate latches onto the wave because it seems like a good thing to do, or because of peer pressure from  industry or customers, it is important go back to the corporate strategy and assess the viability. The application of  any customer loyalty programme should be based on a specific pillar in the bigger organization blue print that covers   customer acquisition, satisfaction and retention. Wherever this plan sits, that is where the loyalty programme needs to be embedded. It is of notable importance that the department charged with the responsibility of handling and managing the programme is well grounded and in sync with the strategic direction for this initiative, scenario analysis including the possible risks and mitigation factors, the minimum threshold for which the programme will be deemed successful or otherwise, and the cost benefit analysis to the brand. Most importantly though, is to have the customer at the centre of  this decision making process, otherwise it will neither be sustainable nor rewarding for him or the company.

Reciprocity
Customer loyalty programmes when well designed serve to alter customer behavior. The principle of reciprocity kicks  n and as social psychologists have it, human beings live by this virtue. They as a rule feel warmer to, and are  obligated to repay favors and gifts. Loyalty programmes by their very nature play in this space.

Customers’ hard  wiring such that when something nice is done for them, then they naturally feel like doing something nice in return. That  something nice’ is continued  patronage. The reciprocity concept allows for relationship building and nurturing for as  long as the exchanges keep happening with a win-win outcome for both parties. What needs to be of lucid clarity is  hat the relationship continues only if the receiving party – in this case the customer – at no point feels taken advantage  f, or in any way slighted by the programme model.

This therefore calls upon the designers of the loyalty programmes to ensure that the communication built around the  programmes is crafted in such a way that it is offered to the customers as a gift for their patronage. Reciprocity works  seamlessly where the good gesture is construed not to be manipulative, and the power of it is seen when the   recipient deems the act to be one of kindness. The most successful loyalty programmes witnessed in the country are  those that allow customers to access products and services not proprietary to the loyalty programme owner.

Brands  have partnered on various occasions to run joint ventures that allow loyalty programme members to access their  products and services at a discount or to redeem their loyalty offers at different outlets. This model significantly      increases customer delight with strong positive feedback and emotional alignment towards the mother brand. Any  brand that is seen to be taking care of the holistic needs of its customers cannot go wrong in terms of customer    engagement. One very successful programme with massive customer mobilization has been a leading supermarket  with an offer to redeem loyalty points for school fees cheques at any school of choice. The massive brand appeal in  response to this ‘giveaway’  continues to date despite the programme being halted for about a year or so.

What is in it?
Having covered what is -in-it for the customer, the same line of thought must be explored for the provider ahead of  commencement. And as with all good business strategies, the planning process must begin with the end in mind. Sustainability requires that the programme does not eat too much into the product or service margins, and allow for a  minimum threshold buffer. The bottom line value linked to customer retention must be computed with inputs into: the  value of the proposed pipeline of customers to be netted via novelty attraction, the value brought by retention and  stemming of attrition of the existing customers as well as the value of the word of mouth referrals from existing  ustomer communication to their networks on the advantageous offer on the cards. Equally important is the net effect  of the customer loyalty programme on the marketing budget owing to the reduced likelihood of customers running off  to the competition, thus reducing or eliminating the need for competitor based marketing campaigns. Loyalty  programmes are likely to change consumer behavior by providing the incentive for purchase of a wide range of  products from one provider in place of a range of retailers, with a view to taking advantage of the loyalty offer.  Where  products or services may not be up to par with the competition, the customer  will be inclined to provide feedback for improvement to enable their continued procurement to earn their reward.

The icing on the cake for loyalty

Programme  providers is the almost painless acquisition of customer data that enables brands know and understand their customers in  rider to then serve them better. Caution must be observed not to use customer information for unsolicited communication campaigns or have these accessed by third parties not enlisted in the partnership agreement with the customer. Any indication of breach would not only form the basis of legal redress, but also have the specific  programme acquire an unpleasant reputation. Study of customer behavior from data collected to decipher common  rends, adjust responses appropriately and anticipate needs to adequately meet and exceed them, is valuable for  business continuity.

The golden rule of customer experience excellence – Know Your Customer – is made much easier  by the availability of such important information. The most important factor to consider when starting up, rejuvenating,    or planning for sustainability of a customer loyalty or reward programme, is to have customer welfare   at the centre of the planning process as a critical element for success, and to ensure the programme is built around  partnership for success rather than for company gain.

Carolyne Gathuru is the founder and director of strategy at  Lifeskills Consulting. She has a wealth of experience in customer service strategy development and training.

Email: cgathuru@life-skills.co.ke