Alas – summer is here and it's time for my annual cleaning ritual. First the house. Then the office. And finally, my personal organizer and wallet. This year, I'm going to pay particular attention to my wallet, which over the last twelve months has grown unusually bloated (it reminds me of that Seinfeld episode where George's wallet explodes all over the streets of New York).
As I sift through the various pieces of paper, receipts, business cards and other memorabilia, I realize that the biggest culprit in the bloated wallet syndrome is the dreaded loyalty card. Or should I say – cards.
At last count, I have no less than a dozen different loyalty cards on my person. It seems like loyalty programs are the latest trend in the CRM movement. Nearly every organization has one. Looking at my own collection, I have cards from airlines, car rental companies, drugstores, gas stations, hotels, video rental stores, health food stores, book stores and coffee shops.
I didn't realize that when marketers refer to "share of wallet", they mean it literally, in terms of bulk space occupied.
But as I sift through my collection to decide which cards should stay and which must go, I ask myself what the value of some of these loyalty programs are – both to me as a consumer, and to the issuers of the card.
In most cases, loyalty programs are really nothing more than simple reward schemes – buy more and receive a reward (points, giveaways, coupons, dollars-off, etc.). From a marketer's perspective, these programs exist with the belief that if you continue to reward customers for doing business with you, they will continue to give you their money. The concept is sound if your loyalty program provides unique value relative to competitive offerings.
But in a crowded (and competitive) marketplace, I'm not sure that's always the case.
Consider the travel industry, as an example. I have loyalty cards for most of the major hotel chains. And each one offers the option to have my hotel points converted to my favorite airline rewards program. Given this, none of those chains will win my business more than others simply on the basis of reward points. Price, location and amenities will continue to play a role in my decision. In other words, none of the hotel chains gains a competitive advantage simply on the basis of having a loyalty program alone.
The quickest path to building customer loyalty – and ultimately customer value – is by making it as easy as possible for your customers to do business with you repeatedly. If you make it easier for customers to buy from you, relative to your competition, then you will continue to win their business, assuming your products or services are comparable. And even then, slightly inferior products, or more expensive pricing for many categories is not enough to get customers to switch.
This is marketing 101. Yet few loyalty programs take this key switching cost into account.
But there's a simple, yet powerful solution. For many organizations, the Internet can become the ultimate "make it easier to buy" enabler, allowing an organization to provide value-added services for loyalty members while building switching costs into its loyalty program.
Consider the travel industry again. If you scratch beneath the surface of loyalty programs run by organizations like Starwood or Avis, you'll quickly note that they're more than just about rewards or points – they're about making it easier for their customer to do business with them.
In the case of Starwood, even though they offer me reward points to stay at their chain of hotels, what really keeps me coming back is the level of customer service I get as part of their loyalty program. When I register as a Starwood Preferred Guest online (preferredguest.com), they not only ask for my points preferences, they also ask me my room preferences, my bed preferences (including pillow type), my preferred floor level, my credit card information for express booking and my choice of newspaper to be delivered in the morning (among other things). Even better, when I go back to preferredguest.com, I can not only get an update on my points, but I can also manage my account, get special promotions and look up my account history (great for business travelers who need to submit expense claims).
And for Starwood, they not only get increased customer loyalty, they can also gather valuable customer data about my purchase behaviour and, at the same time, reduce customer service costs from me not having to call their 1-800 number every time I need a statement faxed.
While Starwood is a luxury chain and can afford to provide this level of tailored service, it's by no means a stretch to consider providing this level of loyalty service for other types of businesses. As an example, my video store loyalty program should allow me to go online, submit my movie preferences and allow me to express find or reserve copies of my favorite types of movies (based on actor, director, genre, awards, etc.). Concurrently, the video chain can learn more about my purchasing patterns and recommend products to me proactively. I can guarantee you that if someone made that option available to me, I would not only increase my frequency of visits, but I'd also likely end up renting more movies per visit.
There is, of course, a cost benefit to providing this level of service online, and it mostly makes sense for organizations with large numbers of customers and significant customer service costs. The exercise becomes one of incremental profits versus cost of implementation and maintenance. But generally speaking – for most organizations – the payback to providing a MakeItEasierToBuy.com service to customers is significant, both in loyalty and dollars.
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