Loyalty is about retaining (profitable) customers not boosting short term sales with the acquisition of promiscuous ‘deal seekers’!
Customers attracted by the best deal are promiscuous, and switch whenever there is a better deal available elsewhere.
Many retailers were lured into even deeper discounting in January because their sales had actually started well before Christmas. But did they make a profit? Well, there have been many profit warnings issued recently. Those that held off their sales until after Christmas actually did. This again raises the question of promotional offers versus loyalty programmes.
Offer Engines, such as Groupon and VoucherCloud, are about acquiring new customers and kick-starting sales in a flagging market. However, discounts, vouchers and coupons make consumers promiscuous shoppers. The rapid growth of these types of programmes is coming to an end as retailers and brands look to improve margins and keep customers coming back for more. At the IGD Conference on 8 October 2013 Procter & Gamble’s UK managing director Irwin Lee has vowed to improve marketing campaigns by moving away from “unsustainable” value giveaways and instead focusing on combining in-store and e-commerce, real-time marketing and turning big data into “smart data”.
This is exactly the right approach, and is where Customer Loyalty programmes play their part, in increasing sales, retaining customers, and maintaining margins. A well designed loyalty programme should be about:
- Retaining (profitable) customers
- Increasing (profitable) spend
Retention programmes encourage consumers to be more loyal and less promiscuous. Acquiring new customers needs to be more subtle to avoid the ‘deal seekers’. Use data from a loyalty programme to profile the ‘best’ customers then seek out those consumers with similar profiles as these are the ones that are more likely to be loyal.
Marketers spend 95% of their budget acquiring new customers whereas investing in retention produces a much bigger return as just a small reduction in churn of 5% doubles the life time value of the existing customer base.
Marketing budgets are set before the start of the financial year and generally spent on campaigns with no measure of their effectiveness. In my view every campaign needs to have defined objectives and an estimated return. Those that succeed can be repeated and those that don’t become a lesson learnt. The best can be set up to trigger automatically when a certain behaviour pattern is detected.
Chris Jacobs Chris Jacobs is a renowned and highly experienced CRM/Customer Loyalty consultant. Having been personally involved in the design and implementation of over 90 CRM/Customer Loyalty programmes in the UK, Europe and beyond, and started two companies offering customer loyalty solutions and services, he has practical experience in all aspects of Loyalty, from end to end. He has worked in business systems for over 40 years, the last 25 of which have been exclusively in customer-focused marketing applications.