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Building and retaining the loyalty of customers through loyalty programs

For over 100 years, companies have been rewarding customers for repeat purchases, evolving from simple travel rewards to more complex experiential rewards. But why? Because ...



During this time, loyalty programs have been used as part of an overall loyalty strategy to help drive sustainable profitability - and this has evolved from simple offers to complex cross-company schemes.

As markets become increasingly competitive, retaining the loyalty of customers is becoming more of a focus and, yes you guessed it, loyalty programmes are the vehicle through which this is being achieved…

... but unfortunately because of more and more companies being interested in the loyalty scheme method, more loyalty programs are available and an effective loyalty program remains elusive for most companies – especially those with little experience in the loyalty market industry.

 The design of effective loyalty programs needs to consider 3 dimensions - operational, market and technological,  to positively influence the main drivers of customer loyalty:

  • Operationally, there is an increasing trend towards a coalition approach. As customers have greater choice in an unpredictable market landscape, the cost savings and value enhancements of these partnerships are becoming more and more relevant. Also, the coalition approach reduces the risk for the companies that are investing in loyalty schemes
     
  • Markets are more mature and so innovation is the key to differentiation and hence customer retention. Authentic interaction with customers is likely to hone in on companies’ most profitable customer segments
     
  • Improved technology has been a key enabler of loyalty program evolution and so generous investment in programs is required to keep up with leading practices. Data acquisition and subsequent analysis needs to be at its core and the resulting interaction with the customer has to be authentic:

What does the future look like?

  1. Winning/retaining a customer’s loyalty is likely to be both more important and challenging than before, because of the ever changing market landscape as well as increasing customer  demands. Attracting the loyalty of customers through loyalty programs will therefore become even more strategically important.

    It is becoming increasingly more expensive to acquire new customers relative to retaining existing ones and this trend is set to continue. Therefore, an effective loyalty program should not only look after the existing customer base - reducing customer attrition and where possible increasing revenue per customer spend, but also nurture new customers to become part of the  future “loyal” customer base as quickly as possible.

    Additionally, the demands of a changing market landscape requires a more flexible and dynamic approach in interacting with customers. A sophisticated loyalty program is therefore an attractive option to keep up with this constantly evolving landscape.
     
  2. Future of customer loyalty will be built around real-time and integrated customer management, and be centred on the principle of trust

    Winning loyalty is about fulfilling customer needs at different stages within a multi channel approach – and a well designed loyalty program is an excellent way of achieving this through feedback and monitoring.

    Rich data acquisition and intelligent use of such data through an effective loyalty program can allow predictive tailoring of product or service offerings to requirements of customer. And this will solve the relevancy problem ... ‘Only 31% of customers thought their loyalty programme communications were relevant to them.’ That’s less than 1 in 3 people. A shocking statistic given the amount invested in these programs.

    And finally, companies should focus their efforts on interacting authentically with their most profitable customers, moving away from mass marketing. Personalisation is definitely the way forward.
     
  3. Successful loyalty programs are likely to require the formation of managed strategic alliances with existing programs to deliver a unique mix of values and therefore enhance differentiation from competitors

    Loyalty partnerships or coalitions are important from both the customer and business perspective. For the customer, they have a wider variety of touch points to choose from which makes the loyalty value proposition more attractive, and for the business, they help spread the program cost and provide a source of acquisition to the brand.

    Trends in the evolution of loyalty programs suggest that consolidation is the likely way to deliver this optimally for both company and customer. Partnership loyalty programs are already popular in Europe and emerging markets – the US is beginning to also embrace this proposition. For example, companies such as Nectar and Clubcard have already shown the benefits of alliance based loyalty programs and are aggressively expanding.

    Given these examples, perhaps a good approach for the future is for brands to invest in creating a separate capability for partner management to ensure they have the right people, processes and technology to manage partnerships?

    Whichever way companies view the loyalty program approach, one thing is for certain, customers will continue to expect more because of the array of alternatives at their fingertips.

About the author

Sera Karakas
Sera Karakas
Sera is a strategy and transformation management consultant with experience on projects with international retailers, banks and several large private and public sector firms. She specialises in operating model, organization design, process improvement, shared services methodology and programme management. Studying at the London School of Economics resulted in her developing a multi-dimensional and multi-disciplinary approach to problem solving, whilst her true forte is the ability to turn her creative thinking into tangible strategic goals through her outstanding organizational ability.

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