Companies are investing billions of euro into customer reward programs in an attempt to build customer loyalty and defend their top line results. This article describes how loyalty programs short-term can boost revenue and win over customers, but long-term they are likely to become cost centres, which consequently lead to a disturbance of market equilibrium in the shape of an overall higher price level.
According to a 2011 research report based on an analysis of about 96% of all loyalty programs in the US the number of programs per household is now 18, an increase of 50% since 2006. In 2010 the overall estimated total value of loyalty currency in the US represented 48 billion USD.
The all important question is, to what extend can a monetary based program substitute customer satisfaction and build loyalty? Numerous researches have demonstrated that customer loyalty is based on customer satisfaction, which is directly linked to the performance of the employees.
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Customer loyalty programs: Creating phantom loyalty - by Jens Gregersen
1. Customer reward programs:
Creating phantom loyalty
By Jens Gregersen: Aligning the marketing and sales departments with customer expectations is more than my
expertise, it is my passion. I develop long‐term competitive advantages based on consumer and experience
orientated profit strategies. Stay connected LinkedIn
Despite a lack of evidence are companies investing billions into customer
reward programs in an attempt to build customer loyalty and defend
their top line result. This article describes how loyalty programs
short‐term can boost revenue and win over customers, but long‐
term they are likely to become cost centres, which consequently
lead to a disturbance of market equilibrium in the shape of an
overall higher price level.
According to a 2011 research report based on an analysis of
about 96% of all loyalty programs in the US the number of
programs per household is now 18, an increase of 50% since
2006. In 2010 the overall estimated total value of loyalty cur‐
rency in the US represented 48 billion USD.
The all important question is, to what extend can a monetary
based program substitute customer satisfaction and build
loyalty? Numerous researches have demonstrated that cus‐
tomer loyalty is based on customer satisfaction, which is di‐
rectly linked to the performance of the employees.
Service as profit strategy
Mass production and globalisation have not just erased any ma‐
jor product differences in terms of features, functionality and price, it has also made it easy for
companies to practise the simplest, most familiar, and effective marketing strategy of all, to copy and market
proven ideas. This change in production also have a significant influence on companies position strategies as its
products no longer is the primary source of customer value – the value received compared to the total cost.
This reality is seen in a new communication trend has gained popularity among major producers of consumer
goods (FMCG) in Spain; via TV‐ads they communicate that they do not produce for white labels. This is rather
interesting because if you think about it they are actually saying; Dear customer, you can’t really tell the differ‐
ence by taste, feel or look, but if you want our “exceptional” product, you need to buy our brand!
As honest as the message might be it is a significant shift away from the communication strategy of for example
Coca‐Cola, which seemingly always has based its marketing communication strategy on the uniqueness of its
products – the secret formula locking away in a vault with a rusty lock. True, Coca‐Cola’s actual strategy is based
on an airtight distribution network making its products available in even the most remote areas of the world.
According to Fader (1993) the most effective growth strategy is one based on distribution or product availabil‐
ity. An example of this is found on Villiers Street, a short footpath in London, connecting Embankment tube sta‐
tion to Strand. On these 250 meters a total of three Starbucks coffee shops are ready to serve the cafe latte
segment. Though three Starbucks shops on just 250 meters is significant they are by far not the only ones serv‐
ing lattes – and hands on heart, the latte served at Starbucks is not that different from other great lattes. Hence,
distribution is a no brainer; it is basic prerequisite that customers have easy access to our products, especially
COMMERCIALISING IDEAS/EN/13 SEPTEMBER 2011/
4. marketing promise but later the challenge is to keep this fresh in mind. The EDLP strategy is similar to Tesco’s
ClubCard in the sense that it is based on a monetary logic – thus, is unlikely to build lasting loyalty, or loyalty at
all for that matter.
Passing ‘Go’ in Monopoly without collecting from the bank
Based on the above description
of the complexity, polygamous On the brink to the 00’s the experience economy theory was articulated – it
loyalty behaviour and purchase argues that companies need to provide experiences by appealing to the
frequency among loyalty card senses and involvement of the customers in order to gain a competitive
holders it can be concluded that advantage – of examples given are Hard Rock Café and Planet Hollywood.
loyalty programs are not the
service silver bullet hoped for by One could almost hear the sigh of relief throughout the corporate world,
many companies. At best loyalty finally something concrete to create customer loyalty instead of the “soft”
programs can disrupt market and intangible service concept. Thus, more and more theme based busi‐
equilibrium and attract new nesses popped up in the shape of Irish Pubs and rose coloured Himalayan
customers but the real battle for salt flakes. But businesses apparently overlooked a fundamental detail – the
customer loyalty takes place in fact that customers take products and services for granted! In other words,
the interaction between the basing a business on a product related theme, storytelling or even a fantas‐
service employee and customer. tic packing is not sufficient if the service fails. Blimey, back to service.
Food for thought
“Satisfied employees generate demonstrably superior customer satisfaction and that, in turn, satisfied custom‐
ers are more profitable ones.” Herb Kelleher, founder of Southwest Airlines
“Based on 30 years of research it can be concluded that enthusiastic employees consistently outproduce and
outperform their less satisfied counterparts.” Jack Welch, former CEO of General Electric
“Companies with a highly evolved sense of the employee‐to‐customer‐to‐profitability chain constantly measure
everything: customer satisfaction, employee satisfaction, process efficiencies ... everything. Marketing Innova‐
tors International
“A 5% increase in customer loyalty can produce profit increases from 25% to 85%.” Reichheld & Sasser
“The average monthly cost of replacing a sales representative who had five to eight years of experience with an
employee who had less than one year of experience was as much as $43,000 in sales.” Abt Associates
We would rather take an eager, hungry, customer‐orientated
mind and mold it to what works well at Southwest, than try to
change the habits of someone who’s come up through an
organisation that views life differently .
Sherry Phelps, Director of Corporate Employment, Southwest A.
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