RETAILINGCustomer Relationship Management

Loyalty Program

2

Customer Relationship Management (CRM)

Traditional Marketing CRM

Goal: Expand customer base, increase market share by mass marketing

Goal: Establish a profitable, long-term, one-to-one relationship with customers; understanding their needs, preferences, expectations

Product oriented view Customer oriented view

Mass marketing / mass production

Mass customization, one-to-one marketing

Standardization of customer needs

Customer-supplier relationship

Transactional relationship Relational approach

Why talk about Loyalty

• Mature Industry• increasing competition

• Focus on getting more customers• Market share Vs. share of customer

• Competitive advantage• Price• Service quality• Loyal relationships

The bottom line

• 90% of customers who love a company will repeat but only 30% of customers who like the company will repeat (Opinion Research Corp.)

• 20-40% of your customers bring 80% of your profits

What to expect from loyal customers

• Behaviors:• Come back frequently• Buy most expensive products• Recommend provider to friends• Give important suggestions

• Emotions:• Are attached to the provider/staff• Trust the provider• Resist changing despite competitors’ persuasion• Willing to forgive mistakes-relate to product harm crisis?

?

What is a Loyal Customer

• Definition: customers with a long record of purchases from a preferred provider caused by their psychological and emotional bond with that provider

• Are there various types of loyalty?

Types of Loyal Customers

Frequency of PurchasesA

ttac

hm

ent

-

-+

High Loyals Latent Loyals

Spurious Loyals Low Loyals

+ Frequency of purchases -

-

A

ttac

hm

ent

+

Differentiated Strategy to Loyalty Segments

“Not all customers were created equal”

• High loyals – most profitable, make them feel like family (20% of your customers)

• Latent loyals – find out why they can’t come more often, find other ways they can help, don’t discount

• Spurious loyals – come but don’t care, make them connect with you, make them wish for special treatment

• Low loyals – don’t get distracted with them, but make sure they are satisfied (approx. 40-60% of your customers)

?

How to foster loyal relationships

• Current loyalty programs• Ineffective in creating a bond• Most are simply frequency programs• Make people shop around and look for deals• Make customers price sensitive• Erode profits

We can identify loyal customers but we don’t know how to generate customer loyalty

Foster Customer Loyalty • RIM (Resource Investment Model)• BC (Building Community)

R.I.M.Resource Investment Model

Provider’s investment of

special resources

Customer’s investment of

special resources

Customer’s loyalty to provider

Protect customer’s equity

Loyal relationships facilitate special treatment

Morais, Dorsch, & Backman (2004)

Types of Resources

Love

Status

Information

Services

Goods

Money

Types of Investments

Give – to your valuable customers1. Make sure that your special customers receive special treatment

2. Send cards for birthdays rather than just for the holidays

3. Make them feel unique (use name, compliment them for helping)

4. Educate them about front and back stage

Receive – from customers5. Give them opportunities to get to know you (your staff)

6. Help them become advocates of your company (merchandize, web)

7. Seek their opinion

8. Allow them to commit to you with a long term program ?

B.C.Brand Communities

• Definition: group of individuals united through the consumption of your products• Harley-Davidson’s “HOGs” • Club Med’s “Gracious Members”

• Characteristics• Communality – help and expect help from others• Brandfests are used to share history (Brandfests are events that

bring consumers together in geo-temporally concentrated events and entail coordinated activities and brand happenings.)

• Keep consumers to stay connected

Building a Community

Community1. Use a newsletter to share news about customers

2. Develop an online forum for customers to stay in touch

3. Organize annual events “by invitation” for VIP customers

4. Facilitate picture / story sharing

5. Help customers help each other

6. Give a name to the community

7. …

?

Action Outline

1. Select your market segment• Identify most valuable customers• Identify customers who might become valuable

2. Design a relationship-building service culture– Identify what type of treatment promotes customer loyalty– Identify what loyal customers want to give to you– Identify potential for the development of a brand community

3. Implement a loyalty treatment– Design specific communication strategy and message– Train staff to understand the importance and the process– Create opportunities to invest and receive investments– Generate a sense of community among your customers

4. Measure effects of program and redesign– Maintain constant communication with your loyal customers– Monitor costs and results of your program