Everyone knows it’s cheaper to retain an old customer than to win a new one. That was the first thing they taught at marketing school. But if you offer loyalty bonuses do you compromise your profits to the point where it would actually be more lucrative to win a new customer?
The answer for many companies is ‘Yes’. According to a new study from the Institute of Practitioners in Advertising (IPA) as few as 9% of loyalty campaigns deliver significant profits. What they do deliver, however, is brand awareness. But given that every customer benefiting from the scheme is a loyal one surely brand awareness isn’t in question?
The IPA report goes on to suggest that offering discounts to customers who were already prepared to pay the full price is not a good strategy. And maybe retailers need to stand back and think about the whole concept of customer loyalty.
In so doing they may well see that the real problem is that every retailer on the high street is offering loyalty discounts and so the customer is forced to be fickle. After all why would a customer take a detour to use their Tesco card when they also have a Sainsbury’s card in the pack and Sainsbury’s is nearer.
Of course serious loyalty scheme fans would argue that there is more to it than giving discounts. The card allows the retailer to find out key information about its customers and to use this to introduce new products and entice them into buying more than they might otherwise buy. That would be great in theory but not if the card is failing to draw the customers into the shop in the first place.
BUSINESS FORUM COMMENT
So has ‘loyalty’ had its day? Or does it just need an injection of new life and new incentives?
Surely the measure of a truly loyal customer would be the fact that he/she carried just one card and only shopped in one store. And that’s never going to happen now.
Perhaps what customers really want is to clear all the cards, vouchers and other clutter from their wallets and shop in places that simply offer good value for money with no bits of paper to collect or trade in. Asda claims that it is doing just that but this supermarket has a problem because it has predicated its advertising on value for money only.
But as supermarkets engage in price wars and squeezing their suppliers to drive down prices at the till the difference between one supermarket's pricing structure and another gets less. This results in fewer customers are buying on price alone and then quality becomes a deciding factor hence the success of Marks & Spencer and Waitrose.
Food prices are set to rise in the UK in the coming year and this will be an interesting test of customer loyalty for supermarket chains.
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