The Battle for Customer Loyalty

The explosive growth of e-commerce has created a new competitive landscape in which the old rules of attracting and retaining customers no longer apply.

Given the ubiquitous nature of the Internet, traditional buyer-motivating factors such as convenience and limited product or service choice are simply outdated.

Carlson Marketing Group, Minneapolis, recently said loyalty marketing is among the “most vital strategies in winning new business, retaining current customers and boosting overall customer share.” Yet retailers and e-tailers alike struggle with the challenge of identifying and delivering cost-effective customer loyalty solutions that truly influence consumer purchase decisions and increase profits.

Moreover, the competitive nature of today’s marketplace is placing increased pressure on offline and online companies challenged with finding ways to differentiate their services and to drive repeat customer purchases. Forty-four percent of U.S. CEOs saw customer loyalty as a major management challenge in the coming year, USA Today reported last summer.

This challenge has resulted in many companies investing heavily in price promotions and incentive-based programs to lure customers and sway purchasing decisions. However, many retailers confuse incentives with loyalty. They heavily invest in programs that get customers in the door but never know whether they return. While incentive programs focus on acquisition, loyalty programs have a very different marketing purpose: customer retention.

Forrester Research, Cambridge, MA, said marketers will spend $1.8 billion on online promotions this year. These promotions range from contests to free shipping to coupons, and they typically include the offer of low-value rewards such as cash rebates, merchandise and gift certificates.

Rather than creating lasting customer relationships, these short-term promotional programs help to attract one-time purchases. Promotions don’t lead to long-term profits. Ultimately, according to Jupiter Communications, New York, “dollars spent to acquire a customer are wasted if the lifetime value of the customer amounts to a single purchase.”

The Harvard Business Review said the cost of acquiring a new customer is six to 10 times greater than the cost of retaining an existing one. This is true for traditional bricks-and-mortar companies as well as for e-commerce businesses, both of which face the challenge of combating margin pressures with cost-effective customer loyalty solutions.

So how does a retailer or e-tailer guarantee loyalty? The answer lies in offering a reward program that has proved to change customer behavior and provides incremental revenue opportunities.

When selecting a loyalty program, companies often overlook the need to accumulate and analyze key customer data in a way that will ensure repeat behavior and will afford them the intelligence to execute targeted promotions and direct marketing programs. Your loyalty partner should be viewed as a complete customer relationship management provider. The ability to tailor your loyalty program to capture and make use of customer analytics will be the cornerstone of your success.

When creating or investing in a customer loyalty program and focusing on retention, there are several things for businesses to keep in mind:

* Does the reward you want to offer compete with your core business? What reward would have the most appeal to your customers?

* Make sure the reward you offer appeals to both existing and prospective customers and to your market from a demographic perspective. Is the loyalty program flexible? Do you have the ability to customize it?

* Invest in a program that offers a reward that consumers need to earn over time. A reward such as free travel takes time to acquire and has proved to alter buying behavior.

* Seek a program that offers a network of partners to co-market and share program costs.

* Look for a program that can provide customer data to help you build long-term relationships with a captured audience.

* Find a program that works for both online and offline customers, so you can keep the program consistent with both customer segments.

* The rewards should be easy to acquire and redeem. A reward that provides multiple levels for redemption has broad appeal.

Finally, for a loyalty program to work, it needs to reward customers for both online and offline behavior. Be aware of how incentive programs differ from loyalty programs in their objectives and results.

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