Loyalty as a phenomenon is widespread, but how many retailers comprehend its potential and appreciate its power? Price Waterhouse Cooper (PWC)’s report on “The best business allies: Retaining Customers” focuses on what retailers can do. STOrai highlights:

As the global economy slows down, retailers want to ensure that customers remain loyal.  Acquiring a new customer costs 5 times more than the cost of deepening an existing customer relationship.

Consumer churn has led to a rise in marketing & consumer acquisition costs – and retailers are using loyalty programs as a way to retain consumers. Retailers with mature loyalty programs have realized that 20% of loyal customers can account for as much as 80% of sales.

Investment in these high-value segments (‘high value customers’ – HVC) is the focus of the PwC report on Loyalty.

Companies are shifting from being product-oriented to consumer-oriented.

According to PwC’s 13th Annual Global CEO Survey, 60% of CEOs expect customers to play a more active role in product development. In addition, 90% consumers trust peer recommendations but only 14% trust advertisements. Thus, an optimal loyalty programme should have a perfect balance of the right customer, the right message and the right channel leading to higher referrals and repeat purchases.

PwC believes that loyalty programs need to be structured on three dimensions – interactions, incentives and intelligence.

• Interaction covers all touch points that convey the program tenets and offerings to the customer i.e. channels and services.
• Incentives involve management of marketing initiatives, including the design of loyalty programmes, and the overall economics of these and related initiatives.
• Intelligence covers data collection and transformation activities to generate insights about program initiatives and customers.

Key challenges that loyalty programs face:

• Large number of programmes run on inefficient legacy systems
• Undifferentiated programmes lead to customer indifference
• Organizations haven’t been able to successfully tap into the potential of emerging technologies like social media and digital media in the context of loyalty initiatives.
• Challenges in estimating the customer lifecycle and on investment returns of loyalty initiatives

Conclusion:

• Five practices that drive profits from any loyalty management initiative:
• Understanding program costs & Drivers
• Developing profile of customer profitability & segments
• Proactively manage levers to engage members up the profitability chain
• Monitoring competitors
• Continually updating the model, ideally twice a year, to reflect emerging trends.