Comment: Loyalty is about retaining profitable customers

Customers attracted by the best deal are promiscuous, and switch whenever there is a better deal available elsewhere. A well-designed loyalty programme should be about:

Offer engines, such as Groupon and VoucherCloud, are about acquiring new customers and kick-starting sales in a flagging market, however, discounts, vouchers and coupons make consumers promiscuous shoppers.

The rapid growth of these types of programmes is coming to an end as retailers and brands look to improve margins. At the IGD Conference on 8 October 2013 Procter & Gamble's UK managing director Irwin Lee vowed to improve marketing campaigns by moving away from "unsustainable" value giveaways and instead focusing on combining in-store and eCommerce, real-time marketing and turning big data into "smart data".

This is exactly the right approach, which is where customer loyalty programmes play their part, in increasing sales, retaining customers, and maintaining margins. Retention programmes encourage consumers to be more loyal and less promiscuous. Acquiring new customers needs to be more subtle to avoid the ‘deal seekers’. Use data from a loyalty programme to profile the ‘best’ customers then seek out those consumers with similar profiles as these are the ones that are more likely to be loyal.

Marketers spend 95% of their budget acquiring new customers, while investing in retention produces a much bigger return as just a small reduction in churn of 5% doubles the lifetime value of the existing customer base.

Marketing budgets are set before the start of the financial year and generally spent on campaigns with no measure of their effectiveness. In my view every campaign needs to have defined objectives and an estimated return. Those that succeed can be repeated and those that don’t become a lesson learnt. The best can be set up to trigger automatically when a certain behaviour pattern is detected.

Campaigns need to be highly targeted using data insight and behavioural analysis in order to produce better returns. Through experience, the return on campaigns can be more finely estimated and assured. Consider this: if most campaigns produced a demonstrable, tangible return why have a marketing budget at all?

Chris Jacobs has been personally involved in the design and implementation of over 90 loyalty programmes in the UK and Europe, and has an in depth, practical understanding of the different issues involved in building customer relationships in a wide range of industries.

Formerly managing director of Loyalty Logic, which he set up in 1997 and merged with The Logic Group in 2005, he is now providing independent specialist loyalty consultancy through his own company, Business Assyst.

Chris will be participating in Essential Retail's roundtable on maintaining loyalty from the promiscuous shopper on 11 March. The event write-up will be published next month.

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