Loyalty systems: what are the techniques and means of “hooking” and retaining one’s customers; do the investments in loyalty projects pay off?
In one of its issues, AllRetail magazine published an article discussing whether loyalty systems can be recognized as a panacea for retailers.
Retail sector experts said the market split into two groups of players having different opinions: those from the first group think that the customer loyalty system understood as an economic tool should be a must for retailers, while others are of the opinion such tool is not relevant or efficient, since less than half of the consumers sign up for such programs, and that loyalty should be manifested in personification and promotional offers.
The experts, however, agreed that the principal mission of the customer loyalty systems is to make a purchase in a specific shop more valuable for the customer rather than to induce the customer to purchase more goods. And a purchase will be valuable only when the shop has personal information on its customers and uses that information in a correct way.
Ruslan Dymchuk, Co-founder/CEO of mLoyalty also supported this topic and responded to the questions posed by journalists as follows:
– Who needs to implement loyalty systems, and for what reasons? At what stage of the business development should this be done?
Long-term customer relations are critical for businesses of any lines and sizes – they are the most reliable weapon of the competitive struggle. This puts on the agenda the importance of understanding the customer and building a dynamic strategy of relations with him using various instruments to achieve maximum personalization and speed of response in cases of customer constraints. We recommend to use the metaphor saying “build business around the customer and his needs”. When formulating the strategy, one needs to choose a vector of development, success tools and, relying on them, take management decisions in the process of working with real data, and use the instruments of deep effective analysis and communication. A successful business should be understood as a customer-focused and customer-centric business.
– What are the global loyalty indicators that are used by the consumers?
We all visit shops, cafes, gas stations, etc., joining various loyalty programs. According to a survey of IFAK Institute conducted in 2017, market competition triggers a trend to the transformation of loyalty indicators towards full focus on the consumer (customer) and his convenience of use of such programs:
- Simple conditions of participation in a loyalty program.
- Bonuses + additional benefits.
- Alternative customer identification means (for mLoyalty – phone number, mobile apps).
- More personified communication with the customer via various channels – socialization.
We can observe changes in the global market and bring the trends to our target retail audience; market digitalization has continued in 2017-2018. The term “digitalization” implies interactive relations focused on the customer to the maximum possible extent:
- switch from the plastic cards as the main customer identifier to alternative identification means, including mobile phone number, mobile app, use of chat bots for registration or call of cards (Facebook Messenger, Viber);
- gamification – implementation of gaming mechanics envisaging establishment of the consumer status as a multi-stage rewards scheme based on earning of certain ratings by the participants;
- as rapid as possible response irrespective of the channel used for contact or type of purchase – omnichannel customer identifier.
Development of such a trend allows to obtain more information about the customer, his purchases, behaviors and habits, which, in its turn, facilitates development and implementation of new instruments of customer Big Data analyses:
- the understanding of the need in a quality databases analysis and Big Data processing;
- clustering of different customer segments allowing to forecast preferences and behaviors of specific customer groups to design targeted/personified offers;
- based on the results of Big Data analysis, preparation of personified offers for all LP participants and exclusive offers for the most loyal customers (most often, this option envisages non-monetary rewards);
- personified communication with the customer taking into account consumer behavior and habits.
– What benefits does retail obtain from “loyalty”
Loyalty is treated as a wide range of instruments of gaining loyalty, and the key instrument is CRM used to automate the processes of working with customer experience and relations. The key mission of the CRM methodology is to establish long-term relations with customers based on their needs to increase the overall value of the customer base.
How can we measure the program?
- Emotional loyalty – brand fidelity, readiness to give recommendations, positive emotional perception (readiness to recommend NPS, CSI).
- Behavior loyalty – repeated purchases by the customer, increase in the amount of average purchase size, retention of customers, higher resistance to price offers of the competitors.
- Effect of longer customer life within network (higher CLV).
- Revenues from additional promotional campaigns (higher turnover, direct rebates from vendors).
- Income from realization of analytical information.
The benefits from a correctly designed methodology and implementation of customer loyalty program are listed below:
- Influence the customer behavior with the help of collection of detailed information via all feasible channels.
- Raise brand loyalty, facilitate purchases, involve customers emotionally.
- Increase the number of POS visits.
- Increase the retail network revenues, frequency of purchases, and average purchase size.
- Build up the customer base to the maximum possible extent.
- Feasibility of partner programs launches.
It should be also pointed out that the implementation of the customer loyalty systems does not guarantee quick wins. A loyalty system triggers the appreciation of the value of goods/services, but does no create it.
– Why many major retailers, such as international “Auchan”, do not implement loyalty systems?
This questions should be rather posed to the Auchan” top managers. As an example, one could give a number of companies successfully using their loyalty systems, including Arber, Intertop (Kazakhstan), LotOK, and Med-Service.
Example of “LotOK” supermarkets loyalty program
– Are lower prices and loyalty compatible?
Today, a loyalty system is perceived as an opportunity to buy things at lower prices. The loyalty is positioned by the retail chain rather than by a system integrator. This is the owner of the system who determines the communication with the customer, the means of building long-term and mutually beneficial relations and the perception of the program by the customer. Another recent trend is manifested by bonuses and discounts programs under which, apart from the core benefits, the chain offers discounts on certain goods.
– Are loyalty systems critical in terms of collection of customer data?
Critical is not only the collection of customer data via any feasible channels, but also the feasibility to operate such data and to manage, control and build customer relations strategy,
- Uniform personalized purchases database.
- Launch of advertising campaigns based on the results of the analysis.
- Personalized e-mails, SMS campaigns and push notifications, NPS comments after the purchase as regards service quality.
- Comparison of the matrix of product range with customer profile, launch of co-branding programs.
Calculate recoupment of investments into implementation of customer loyalty systems and request presentation!