What Is Loyalty Marketing?

Loyal marketing is a planning process for companies to develop loyal customers. The more loyal customers a company has, the more the company's income, and the profitability of developing loyal customers is often higher than the company's other business activities. On the other hand, the more companies spend on loyal customers. How much should a company invest in customer relationship activities? However, how can the cost not outweigh the benefits? ^[1]

Loyal marketing

Right!

Loyal marketing is a planning process for companies to develop loyal customers. The more loyal customers a company has, the more the company's income, and the profitability of developing loyal customers is often higher than the company's other business activities. On the other hand, the more companies spend on loyal customers. How much should a company invest in customer relationship activities? However, how can the cost not outweigh the benefits? ^[1]

The economics foundation of Loyalty Marketing is Pareto's law, which is the "20/80 law". 80% of revenue is contributed by 20% of customers. As long as the company captures the core 20% of its customers, it can win most of its revenue and profits. Loyalty marketing is of extraordinary significance to a company's long-term business strategy and sustained profit growth. Loyalty programs have thus become one of the important contents of corporate marketing strategies. Customer-intensive industries such as aviation, hotels, finance, retail, communications, and services have all made loyalty programs an important marketing strategy.

Each 1% increase in customer loyalty will lead to a 4% increase in customer lifetime value.

The marketing cost of keeping a consumer is only one-fifth of the marketing cost of attracting a new consumer. The chance of selling to an existing customer is 50%, while the chance of selling a product to a new customer is only 15%

A McKinsey survey in 2002 found that only 48% of consumers who joined the daily necessities loyalty program increased their spending, and only 18% of consumers who bought casual clothing increased their spending. The question for companies at this time is: Does a large investment in loyalty programs really change consumer behavior? Is the company's return worth the money?

The ultimate goal of loyalty programs is to increase corporate profits. However, with its popularity in various industries and enterprises of different sizes, people find that the lack of differentiated loyalty programs is difficult to arouse consumer interest, and the greater bottleneck is that loyalty The implementation cost of the plan is too high, and it is increasingly difficult to get the support of corporate decision makers and financial managers. Not only do companies need to know exactly how much they spend on loyalty programs, they must also understand how the money is spent.

1. Economist Risk Cost, that is, if customers switch to other companies' products and services, they may bring potential negative results for themselves, for example, the performance of the product is not satisfactory, and it is not convenient to use;

2. Evaluation Cost, that is, if customers switch to other companies' products and services, they must spend time and energy on information search and evaluation;

3. Learning Cost, that is, if customers switch to other companies' products and services, they need to spend time and energy to learn how to use the products and services, such as learning to use a new computer, digital camera, etc .;

4. Organization Cost (Setup Cost), that is, customers who switch to other companies must spend time and energy to establish relationships with new product service providers;

5. Benefit Loss Cost, that is, the company will provide loyal customers with a lot of economic benefits, if customers switch to other companies, these benefits will be lost;

6. Monetary Loss Cost, if customers switch to other companies, they may have to pay a one-time registration fee, etc .;

7. Personal relationship loss cost (Personal Relationship Loss Cost), customer transfer to other companies may cause loss of interpersonal relationship;

8. Brand Relationship Loss Cost Customers who switch to other companies may lose their brand connection with the original company, resulting in loss of social identity and other aspects.

The eight types of conversion costs can be classified into three categories:

1. Procedural Switching Cost (mainly in time and effort), including the cost of the economic crisis, assessment costs, organizational adjustment costs, and learning costs.

2. Financial Switching Cost (mainly economically), including the cost of lost profits and the cost of money.

3. Relational Switching Cost (mainly emotionally), including the above personal relationship loss costs and brand relationship loss costs.

To increase the conversion cost of customers, companies should first consider what losses they will have in terms of process, financial and emotional aspects if their customers switch to competitors. Then increase the difficulty and cost of customer conversion by increasing one or more of the eight conversion costs for customers. Some companies make customers realize that their conversion costs will be high by promoting the particularity of products and services. For example, credit card companies can educate customers about the complexity of financial services and the length of the learning process, making them feel that the cost of program conversion is high and therefore unwilling to easily change service providers. Similarly, by promoting the particularity and irreplaceability of the enterprise itself, providing consumers with a complete set of different functional products and services to increase their dependence on them, so that consumers realize that it is irreplaceable. It also effectively resists the temptation of other corporate loyalty programs.

Providing consumers with more humanized and customized products and establishing a one-to-one relationship with customers at the emotional level will also greatly increase the cost of consumers' procedures and emotions. For example, if Citibank prints customer photos on a credit card, MCI World Communications provides consumers with a direct-dial home phone system for family members. With this call system, family members can spend very little.

But the closer the relationship between a manufacturer and the consumer, the higher the chance of consumer dissatisfaction. If only the procedures and financial conversion costs are established, increasing the barriers for consumers to leave, and at the expense of consumers' love for products, it will increase consumer dissatisfaction with the brand, and ultimately damage customer loyalty.

At present, most of the pioneers of loyalty programs such as hotels and airlines have shifted the focus of loyalty marketing from increasing the cost of procedures and financial conversion to increasing the cost of emotional conversion. Because emotional conversion costs are more difficult for competitors to imitate than program and financial conversion costs. For example, Hong Kong businessman Whitney Small has been a loyal customer of the Hilton Hotel. When talking about why not choose another hotel, she said: "Every time I go to Bangkok for a business trip, they always arrange me in the same room. The service staff knows me and understands my hobbies. The facilities in the room are all I love and get used to it. I feel as free as I am at home. Although other hotels also have a lot of promotional plans, I really can't let go of the feeling that Hilton gave me. "

Enterprises are in different industries and different stages of development, and customers' perceptions of them are completely different. Therefore, different companies should also adopt different methods to find their goals and subdivide the loyal customer group. By controlling their satisfaction with the company's products and services, and increasing their conversion costs at different levels, they can develop loyalty programs to achieve customers. Loyalty to the business.

In recent years, with the widespread application of loyalty programs in the form of accumulated points in various industries, the model for establishing loyalty programs has developed in many directions. Some companies share and expand customer resources and share point pressures through alliances with other industry partners, and some companies deepen their emotional connection and understanding of consumers through interactive communication with market segments.

Generally, companies need to maintain a loyalty program with about 1 million members, which costs an average of $ 2 to $ 2.5 per person per year for registration costs and $ 1.75 to $ 6 for communication costs, while reward costs vary according to industry and program content. The price paid is about 2% to 10% of the customer's consumption. This means that such a 1 million member loyalty program will cost the company at least 4 million to 8 million dollars every year! This doesn't even account for marketing and management costs, such as investment in systems, distribution support, etc.

Fortunately, the technical development of customer registration and testing plans has made the database and loyalty program design and management of the enterprise more efficient, which can greatly reduce the cost of the enterprise.

Now, let's take a look at the main costs of implementing the loyalty program and analyze whether it can minimize the cost of implementing the program:

1. Customers are getting smarter and expectations are getting higher

Now that consumers are getting more and more educated, many consumers have transformed from emotional loyal customers to rational consumers, and their information sources and channels are also increasing. This allows consumers to make good comparisons and judgments between products and services provided by different companies.

2. The Internet is causing customer disloyalty

As an effective sales channel, the Internet has largely changed the shopping habits of consumers. They have become more and more convenient to purchase products, which has greatly reduced the loyalty of many habitual loyal customers.

3. Price-based "Switching Program" will change customer expectations

Just like the AT & T example mentioned earlier, sending cheques to potential consumers to transfer them to the company's services will not only increase customer loyalty, but also keep customers focused on other cheaper products and services.

4.Market globalization brings more competitors

In the face of global competition, more and more companies have stepped up their efforts to implement a loyalty program with "value as the main appeal" and expect to establish competition barriers.

5. "Customer-centric" marketing technology is developing rapidly

Consumer databases are outdated, and technology companies such as Microsoft and Oracle are working on real-time software that can automatically collect and analyze the most valuable consumers. The E5 software developed by E.Piphany can automatically calculate the period of return on investment for each loyal customer.

6. The end of monopoly in the basic industry will make customers' choices more diverse

For many industries, such as telecommunications and banking, monopoly loyal customers will no longer exist. Companies must develop more market segments for loyal customers.

7.M & A between companies will upset loyal customers

The influence of mergers and acquisitions between enterprises on brand and product loyalty is quite large, and many loyal customers are transferred to other companies, especially in the field of financial services.

8. The cost of mass media is growing rapidly

The mass media has always been the main way to promote loyalty programs. But in recent years, its advertising and promotion costs have grown too fast, becoming the most important part of the cost of implementing loyalty programs. In the United States, the current cost of mass media advertising is five times that of 20 years ago.

9. Increasing homogeneity of loyalty programs

In the fields of aviation and hotels, almost all practitioners have launched similar loyalty programs. The end result is that loyalty programs cannot become a company's competitive advantage or earn more profits for the company. However, companies have to launch loyalty programs to establish themselves in the industry.

Case

Don E. Schultz, a professor at Northwestern University's Kellogg School of Business and founder of integrated marketing, once predicted: "There are only two successful models for retailers in the future. One is the Wal-Mart model, which means Supply chain efficiency, squeezing upstream and downstream costs, and taking price and geographical location as the main competitiveness; the other is the Deco model, which uses customer loyalty programs as the core competition of the company through its understanding of customers and good customer relationships Force. There is no middle course. "

Deco: Using "club cards" as a basis for marketing

Tes co's loyalty program, Clubcard, which was implemented 9 years ago, helped the company increase its market share from 16% in 1995 to 27% in 2003, becoming the UK The largest supermarket chain group. Desco's "Club Card" has been evaluated by many overseas business media as "the best use of customer database loyalty program" and "the healthiest and most valuable loyalty program".

In the UK, 35% of households have joined the "Club Card", and registered members have reached more than 13 million. According to statistics, 4 million families check their "club card" points every three months, and then rush to the supermarket to purchase like crazy for Christmas.

Clive Humby, one of the designers of Dexco's "Club Card" and chairman of Dunnhumby Market Consulting Company in London, said with pride: "Most of the members of the Club Card have become our loyal customers since the loyalty program was launched, and since In the end, they have been with us for 9 years. "

"Club Card" is by no means a discount card

According to Clive Humby, the Club Card "is not only positioned itself as a simple points plan at the beginning of the plan design. It is the marketing strategy of Deco and the basis of Deco's integrated marketing strategy."

When designing the "Club Card", Dexco's marketers noticed that many point plan regulations are very cumbersome and the point rules are complicated, and consumers often spend a long time not understanding the specific points method. There are also many companies that offer loyalty program rewards that are very unaffordable. It seems that the bonus amount is high, but it is difficult to redeem. These circumstances have caused consumers to have no idea of their points status, and they are not eager to accumulate and redeem, becoming "dead users" of loyalty programs.

Therefore, the "club card" point rules are very simple and easy to understand, customers can get 1% reward from the amount they spend in Deco, and every time, Deco will exchange the accumulated bonus of customers into "Consumer vouchers" are mailed to consumers' homes. This convenient and affordable point card has attracted the interest of many families. According to Texaco's own statistics, in the first six months of the launch of the Club Card, without any advertising, it achieved about 17% of "customers" Spontaneous usage. "

After the supermarket chains such as Sains bury and Asda also successively launched similar accumulative points programs, Texaco did not fall into the misunderstandings such as fighting price wars with them and increasing customer rewards. By showing customers the "Club Card" when paying, Desco possesses a large amount of detailed customer purchasing habits data, and understands the total amount of each customer's purchases each time, which types of products they prefer and how often they are used. Clive Humby said: I dare say that Texaco has the best and most accurate consumer database in the UK. We know how many British families spend £ 12 a week on fruit and know which family likes bananas and which family likes pineapples. "

Through software analysis, Deco has divided these customers into more than a dozen different "Niche-Clubs", such as "soccer clubs" for single men, "mother clubs" for young mothers, and so on. The "Club Card" marketers have produced different versions of the "Club Card Magazine" for these dozen "categorized clubs", publishing the promotional messages that attract them the most and other topics they are concerned about. Some local disco chains even organize events for members of different clubs. Now, "Niche Club" has become a community, greatly increasing the cost of customers' emotional conversion (including personal emotions and brand emotions), and has become an effective barrier to competition for Deco.

Deco must maintain a club with 10 million members, and the main reward method is cash back. It also needs to provide tailor-made promotions for members of different "niche clubs". The daily management and marketing communications are very important. huge. Without effective cost control, Texaco will certainly fall into the cost quagmire of its own design.

According to Texaco's own statistics, the "Club Card" rebates customers about 150 million pounds a year, and has paid a total of 1 billion pounds for 9 years. Therefore, Texaco summarized a set of cost control methods.

First, Dexcoe almost never uses mass media such as television to promote "club cards." Clive Humby explained that Texaco was one of the main advertisers of TV media, but later we found through surveys that by sending letters directly to customers, the message arrival rate was higher and consumers were more aware. Moreover, many consumers believe that receiving regular communication letters from some large companies gives them a sense of raising their social status. In this limited market in the United Kingdom, Deco's market goal cannot be to win more consumers, but how to increase the value of individual consumers, so it is cheap and effective to establish direct contact with consumers. "

If some "niche clubs" want to conduct a "get new customers" marketing campaign, they will often choose one or two magazines that are often read in these market segments. Then spend very low advertising fees and carry promotional letters from "niche clubs" in the magazine.

In order to better control costs, Deco also often cooperates with suppliers to promote as a reward for returning to consumers, transferring the cost of maintaining loyalty programs to suppliers. Due to Deco's "niche club" database segmented according to consumers' buying habits, the content is authentic and detailed, and the promotion is very targeted. Suppliers are very willing to participate in such promotions to increase brand awareness and strengthen customer engagement Relationship. Compared with Wal-Mart's mandatory supplier price reduction promotions, suppliers basically voluntarily joined hands with Deco to achieve a win-win situation.

Business extension

Starting in 1996, Deco was not satisfied with operating pure retail point cards, but extended its business to the field of financial services. In June of that year, it launched the "Clubcard Plus" co-branded card.

Co-Branded Cards are generally credit cards issued by non-financial for-profit companies and banks in cooperation. They have been widely accepted by the market in recent years and have developed rapidly. The more successful precedents are the Aadvantag e card issued jointly by American Airlines and Citibank, the AT & T Univers al Card jointly issued by AT & T and American Express. In terms of management, joint parties (or multiple parties with detailed profit sharing) can use the company's brand and loyal customer base to design a brand for a consumer group with a certain commonality, which is an excellent market segmentation method .

Deco's "Clubcard Plus" was launched with the 20% of middle class families with the most loyalty and the highest spending limit among Club members. Clive Humby said: In the UK, consumers trust Texaco much more than the average financial services company, so it is only natural to launch a joint credit card with Texaco. "

Nowadays, not only the Clubcard Plus credit card is very popular in the UK, but in 2003, the company launched Deco Personal Financial Services and Deco Telecom Services, etc. Derivative Services. Launched in less than a year, users have exceeded 500,000. As Texaco describes itself: "We don't just reward consumers with 'club card' points, we also decide on the direction of the company based on its data."