Market and Customer Management — Customer Loyalty Overview

Market and Customer Management - Customer Loyalty Overview of Possible Loyalty Programmes (1/8) A variety of loyalty schemes have been proofed in marketplace n The structure of loyalty programmes depend on several factors like … industry … customer behaviour and customer segments … market structure … company‘s strategy … timing n Loyalty programmes based on a point collection/ point redemption scheme are the most known ones. Nevertheless, several other loyalty programmes are possible and can be turned into market success. Examples for these programmes are shown below. ABB creates loyal customer with its “lead customer approach” n The European industry giant Asea Brown Bovery (ABB) involves its most important customers in the construction of their latest products and services. E. g. the Swiss Railway Company was involved in the construction of the new electric railway during the whole construction and design process. The advantage for the customer was that they could give their inputs and needs directly and in an early production stage. n The advantage for ABB were that the Swiss Railway Corporation brought their extensive railway know-how into the construction and that they became a loyal customer. This example is typical for a cost intensive industry with only a limited amount of customers. 02 Programmes. ppt 1 1

Market and Customer Management - Customer Loyalty Overview of Possible Loyalty Programmes (2/8) Sabre and Fed. Ex create loyal customers by involving them in their value creating service process n Federal Express has with its world famous tracking system a powerful loyalty programme. The customer can track his letters and packages and check where they currently are. n The advantage of this programme is, that the customer remains loyal to Fed. Ex. On the other hand, Fed. Ex gets less request from customers and can concentrate on controlling the delivery process better and less cost intensively. n A similar loyalty strategy has Sabre with its flight booking system. The travel agency remain loyal to the company because of the handy online information about the available flights and seats. Microsoft creates “loyal” customer by setting industry wide standards n Microsoft has rigorous approach of loyalty creation. The company sets industry standards with its Microsoft Office. The customers are not yet able to switch to other operating systems because of this standard. n The advantage for the customer is a cheap operating system that offers a wide range of software on this platform. Microsoft's advantage is the high revenue stream created by the standard. Swatch built up a “cult” with its watches n Swatch has a more informal approach for customer loyalty. With their fast changing sets of trendy watches the company built up a „watch cult“ and attracted a lot of loyal collectors all over the world. 02 Programmes. ppt 2 2

Market and Customer Management - Customer Loyalty Overview of Possible Loyalty Programmes (3/8) Different loyalty n A state of the art strategy concerning customer loyalty focuses on loyalty for programmes for different customer segments. An example of an European service company customer segments in the gives an overview of possible strategies in each segment. same company Club Programme Point collection / Redemption Tariff structure Customized tariffs Lead Customer Industry Events Exclusive Contracts Product Bundling; Cross Selling Retail The Guide supports the creation of these programmes esp. focusing on point collection/ point redemption programmes Small Comp. Large Comp. Multinational n The Pw. C Guide to Customer Loyalty helps creating these programmes more successfully. The focus of the Guide is in the creation of point collection/ point redemption programmes. Nevertheless the Guide gives strong support for other possible programmes as well. 02 Programmes. ppt 3 3

Market and Customer Management - Customer Loyalty Overview of Possible Loyalty Programmes (4/8) Tesco as a first mover in customer loyalty - an example Launch of Tesco Club n February 1995 Loyalty Scheme n 1 pound purchase = 1 point = worth of 1 penny n if 150 points and more per quarter, than the customer gets vouchers for use at the store together with money off product vouchers (money off vouchers are funded by manufacturers and suppliers) n Quarterly magazine n Special rules/schemes for students or pensioners n Associate cards for husband wife n Relationships with non-competing organisations such as B&G for home improvement goods and holidays Customer Reaction n February 1997: 9. 5 Mio. members although discount is just 1% (£ 3 - £ 4 savings as a quarterly average) Costs for Tesco n Earned vouchers 1996/7: £ 95 Mio. n Money of vouchers 1996/7: £ 162 Mio. (funded by manufacturers / suppliers) n August 1997 mailing distributed £ 75 Mio. vouchers n Important are also the cost at initial stages for computer developments needed to allow the cards to be recognised and processed at the POS 02 Programmes. ppt 4 4

Market and Customer Management - Customer Loyalty Overview of Possible Loyalty Programmes (5/8) Tesco as a first mover in customer loyalty - an example Benefits for Tesco n Opportunity to know each of its customers spending habits perfectly. n The main benefit comes in the long term from: n the ability to communicate with customers on a one to one basis. n and to know the names and addresses of the most profitable customers in each store. n Payback from the positive reaction of customers when they feel their custom is appreciated and rewarded and the profits on incremental sales is not so important. This advantage is lost as soon as the first mover advantage disappear when the main rivals also offer similar rebate/discounts schemes. n Direction of the advertising budget can be aimed precisely. Tesco uses now far more cost effective advertising campaigns using direct contact methods such as direct mail and outward bound telemarketing. How Tesco uses the data n Analyse composition of a customer shopping basket n Identifying a “golden moment”, the point in time at which a customer is particularly susceptible to an offer for a particular product. (Tracking of a childless couple) n Organisation of club card customer evenings concentrating on topics such as hair styling or wine tasting, etc. 02 Programmes. ppt 5 5

Market and Customer Management - Customer Loyalty Overview of Possible Loyalty Programmes (6/8) Some Examples of Point Collection/ Point Redemption Programmes Company Target Customers Structure & Benefits Redeeming Points Market Comms Lessons learned Swissair Qualiflyer All customers n No joining fee n Miles collected for flights based upon length of destination and class flown n Tiered benefit levels for frequent flyers n Worldwide lounge access with partner airlines for elite members n Points redeemed for flights by completing form and sending to Qualiflyer or by claiming miles by reservation or check-in n Other rewards available including fantasy awards n Quarterly point statement n Newsletter n Database-driven marketing to specific customer segments n Annual fee varies by card type - five different card types n USD 1 = 1 pt for Am. Ex n Varying exchange rates with partners n No expiry date n Points redeemed by telephoning freephone number or writing n Points can also be carried over to airline partner FFPs n Welcome pack including glossy catalogue n Monthly statement n Regular promotions n Freephone n Internet web site n Over 1. 3 milion customers have enrolled to-date American Express Membership Rewards (formerly Membership Miles) All credit-worthy customers n 02 Programmes. ppt A leading airline FFP Renamed from Membership Miles in 1995 n Has come under fire for sending to much junk mail n Regularly voted to best Affinity Credit Card by Inside Flyer readers 6 6

Market and Customer Management - Customer Loyalty Overview of Possible Loyalty Programmes (7/8) Some Examples of Point Collection/ Point Redemption Programmes Company Target Customers Structure & Benefits Redeeming Points Market Comms Lessons learned Migros M-Cumulus All customers n n Customer magazine n Database-driven marketing to specific customer segments n Combines purchase data with external data n Penetration into 1. 45 million households with 2. 5 million cards Points redeemed quarterly n Redemption complicated and only for luxury goods n (large retail chain in Switzerland) No joining fee n 1% discount on all purchases, although often applied to minimum purchase volume n Higher discount when more than 20 items purchased n 10 -100% discount on special offers Coop. Profit All customers n Database-driven marketing through Coop daughters n Issued 2 million cards to-date, although the number of customers not known Points redeemed immediately and expire quickly n Redemption complicated n (large retail chain in Switzerland) No joining fee n Discount on 2 -3 articles per week n Discount on 3 articles from Coop partner firms every 2 -3 weeks n 20 -50% discount on all offers n 02 Programmes. ppt Seen as complicated and expensive n Builds loyalty in customers although the redemption options are poor n Problems with too much junk mail broadcasted to customers Seen as simple, cheap and offering extendet discount n Not enough offers to build long-term loyalty n Big impact on sales of special offers (forward buying) 7 7

Market and Customer Management - Customer Loyalty Overview of Possible Loyalty Programmes (8/8) UK Bank Loyalty Programme Change - an Additional Example External Change Drivers • Distrust of customers (to many schemes) • Changed purchase patterns based on schemes • Financial rewards arising • Rewards for all customers • Focus on core offer Internal Change Drivers n Pw. C analyzed the current situation of a large loyalty programme in the banking industry with a loyalty programme assessment. n Three possibilities for strategic change were identified, based on the analysis of internal and external change drivers. • • Need for strategic programme consortia Need for 25% cost reduction Risk exposure due to unredeemed points Profitable customers do not get enough attendance Possibilities for Strategic change 1. Develop a newly branded retailer rebate scheme 2. Redesign and relaunch a point based reward scheme 3. Close the scheme n Pw. C supported the bank in setting up a redesigned scheme (option 2), that was based on: - Service based rewards for additional cross-selling (based on strategic partnerships with other programmes). - Leisure and travel based rewards for those not wanting to buy into services (based on flexible redemption possibilities). 02 Programmes. ppt 8 8