By Peter Clark (co-author, The Loyalty Guide)
Practical findings from 'The Loyalty Guide Volume II' report, summarising how loyalty programmes are set up, managed, measured, perceived and justified - whether B2B or B2C, in any industry sector...
This article relates to the new edition: The Loyalty Guide Volume II
From 'mom & pop' stores to mass marketing...
The relationship between the 21st century customer and supplier is a complex one. It was never straightforward, and events over the past fifty years or so have complicated it still further - although at the same time providing new ways of nurturing it. Over this time the face of marketing has changed beyond recognition. The 1950s and 1960s saw mass marketing at its peak. After the austerity of the war years, stores filled up with goods that consumers bought enthusiastically. But mass marketing had its disadvantages. It was almost totally untargeted, making it both costly and wasteful. It was indiscriminate, attracting as many 'cherry picking' customers as good customers. It depended on one-way communication: no feedback was received and no relationship was formed.
... and back again
Then they were all squeezed from another side. In some countries, retail space was growing at a faster rate than the population, which meant that it became more difficult and more expensive to attract new customers. In some of the major sectors discounters moved in, drawing yet more customers from the high street retailers. Suddenly, it made sense to retain regular customers rather than simply relying on new ones turning up. But how could organisations with thousands or even millions of customers apply the principles of mom and pop marketing to their massive empires? Well, once the case for the value of nurturing loyal customers was made, it began gathering momentum.
The case for building loyalty
In 1990, The Harvard Business Review printed an article entitled 'Zero Defection: Quality Comes to Services', which eloquently argued the case for increasing profits by decreasing the rate at which customers defect. By retaining just 5% more of its customers, the article showed how a company could almost double its profits. Furthermore, in a period of only five years, a firm with a 70% customer retention rate will have lost 2 - 3 times as many customers as a firm with a 90% retention rate. It pays to engender loyalty.
What can a loyalty programme achieve?
Loyalty programmes are known for some of their more obvious effects - such as increasing spend (and therefore customer lifetime value), and better retention - but they can also achieve a number of other things that impact the company's business strategy, operational efficiency, human resources policy, and more. For example: customer acquisition, up-selling and cross-selling, intelligent deselection (getting rid of unprofitable customers), winning back defected customers, selection of new outlet locations, reducing advertising costs, stock planning and merchandising, getting competitive responses right first time, setting pricing policies, building lasting relationships, and enabling true 'best customer marketing'.
So what is customer loyalty?
Loyalty is an abstract concept - there is no single complete definition of it. It comes in different types and different degrees. Customers are loyal or otherwise for many different reasons: some are loyal from choice, some are loyal because both parties have invested time and effort in building a relationship, while some are loyal because their needs are met or exceeded, and others because the relationship is profitable to both sides.
A number of factors play a part in influencing the loyalty and the commitment of customers, such as the quality and value of your core offering, levels of customer satisfaction, 'elasticity' inherent in the sector or product category, other competitors in the market, and even social, demographic and geographical influences.
The secrets of customer loyalty
In The Loyalty Guide Volume II, we examine in full detail the 17 critical factors that govern the success or failure of any loyalty programme or relationship-based marketing initiative, explaining the traps and pitfalls alongside the paths to profit, including:
1. Not using a loyalty programme as a 'quick fix'
2. Accurate targeting
3. Gaining true consumer buy-in
4. Knowing your customers better
5. Rewarding only the right behaviours
6. Rewarding vs. recognising customers?
7. Spotting defection patterns
8. Using customer lifecycles
9. Rewards appearing to be attainable and affordable
10. Making programme costs recoverable
11. Good communications
12. Keeping it simple
13. Measurable results
14. Customer acquisition targets
15. Having unique benefits that competitors can't copy
16. Empowering your team - and front-line staff
17. Making life easy for the customer
What about partnering with other companies?
There are un-partnered loyalty programmes, and there are partnered programmes ('coalitions'). Within the partnered category of programme, there are two main types of multi-partner programmes that have proved their value time and time again: true coalition programmes, and single operator programmes that include other partners.
Tesco's Clubcard is an example of a single operator programme that involves other partners. The programme is owned and run by Tesco. However, Clubcard holders can collect points when buying from various partners in the programme, such as Alders, Beefeater, Marriott, and National Tyres. Vidal Sassoon is an example of a redemption partner.
However, for example, Air Miles and Nectar are true coalition programmes. The programme management is independent of any of the partners. The partners have contracts with the operators of the programme to issue and/or redeem the currency of the programme, and only have access to data harvested by the programme through its operator.
The Loyalty Guide Volume II also examines the many essential goals that any coalition programme must achieve if it's going to succeed, and why they're so important. Examples of these goals include:
* Rapid market penetration
* Delivery of attractive rewards
* Being the first in the market
* Building communication channels
Strengths and weaknesses compared
Supported by statistics, illustrations and expert opinions, the advantages, disadvantages and structural needs of coalition programmes (compared to, say, an non-partnered loyalty programme) are detailed, covering critical factors such as:
* Interest in the programme
* Fewer cards to carry
* Members earn points quickly
* Greater variety of rewards
* Concentrated, coherent promotions
* Time saved in development
* Lower costs of development
* Database run by professionals
* Sector exclusivity
* Coalition marketing campaigns
* High penetration
* Real cost benefits
How companies have succeeded?
In the report, we have written up case studies, programme summaries and development notes for just about all the world's major loyalty coalitions, co-branded, payment card-based and single-merchant loyalty programmes in depth, covering operational details across a range of industry sectors and countries.
A great deal can be learned from looking at how existing programmes have succeeded - or failed - and understanding not only their approaches to loyalty but also their structure and market dynamics. In The Loyalty Guide Volume II it's our case studies that demonstrate the key principles for customer loyalty success at work - for example:
· Nectar (UK)
· Air Miles (UK)
· Air Miles (Canada)
· Air Miles Spain (aka 'Travel Club')
· Air Miles Netherlands
· Air Miles Middle East
· Payback (Germany)
· SmartClub (China)
· Carlson Gold Points Reward Network
· BonusLink (Malaysia)
· eBucks (South Africa)
· Magna Rewards (Caribbean)
· Infinity (South Africa)
· Advantage Card (Australia)
· R&R (Kenya)
· Premium Club (Poland)
· FlyBuys (Australia)
· Fly Buys (New Zealand)
· UK forecourt loyalty programmes
· US forecourt loyalty programmes
· Fuel Rewards (USA)
· Esso TigerMiles (Ireland)
· Statoil (Ireland)
· Coles Myer/Shell (Australia)
Supermarkets & Grocery
· Tesco Clubcard (UK)
· Safeway (UK)
· Asda (UK)
· Sainsbury's (UK)
· Somerfield Saver Card (UK)
· Co-op Dividends (UK)
· Delvita (Czech Republic)
· Big Y (USA)
· Independent Grocers of Australia
· Various supermarket fuel retailers
Other retailers & sectors
· Neiman Marcus InCircle Rewards (USA)
· Staples Easy Rebates (USA)
· Boots Advantage Card (UK)
· Canadian Tire Money (Canada)
· Jet Club (South Africa)
· Foodtown/Woolworths (New Zealand)
· Samsung Card (Korea)
· StoreClub & Retalix (Israel)
· Guinness (Hong Kong)
· B2B: Nortel (India)
Credit card and debit card loyalty
Co-branded and affinity programmes are usually based on a credit card, and burgeoned in the 1990s. But, while they are still popular with consumers and card issuers alike, the market in some regions has become somewhat mature.
A co-branded card is a the result of a partnership between an issuing bank and a co-branding partner which could be any commercial organisation (such as an airline, automobile association, retailer, insurance company or motor manufacturer). One example of a co-branded card is the UK's GM Platinum Card, issued by HFC Bank.
An affinity card is similar except that the partner is not a commercial organisation, but is generally a non-profit making organisation like a club, association, charity or professional body. One example is the Amnesty International Visa Card issued by the Cooperative Bank. Affinity cards allow the issuer to mine the potential of the database of members of an already formed non-commercial group.
The affinity group itself benefits from extra funds, as a fee is usually paid for each member who enrols for a card, and then a percentage of each transaction's value is also garnered. Most importantly, affinity cardholders feel good because they are positively helping a cause close to their hearts, so they are likely to use the card in preference to other cards they might have.
However, chip-based credit cards (smart cards) - commonly based on the global EMV (Europay/Mastercard/Visa) standard, have opened up the field for loyalty programmes. The chip used to handle the financial side of the card has enough to space to run other programmes and store third-party data on it as well. In effect, card issuers can run their own loyalty programmes on credit cards while retail merchants do the same - with the same card.
Standards for these cards, including the use of contactless (RFID-based) payment cards, have developed quickly in the past two years, and are examined thoroughly in our report, along with the implications not only for marketers and co-branding efforts but also for consumers and their attitudes and loyalty to banks and financial institutions.
Best customer marketing
Best customer marketing (BCM) is all about directing the major part of your marketing budget and effort toward your best customers - those who bring you the most profit. To many, the principle sounds obvious - perhaps too obvious to even discuss. So why, in reality, are so very few companies actually practising best customer marketing effectively?
Best customer marketing is not a new concept - it has been practised since marketing began. It was the cornerstone of the 'mom & pop' stores that were so prevalent until the 1950s. It's plain common sense: look after your best customers really well because they are the ones who generate the most profits. But, in order to identify the best customers, you need customer data. That was easy in the mom & pop stores: the staff knew all the customers personally, knew what they bought regularly, could anticipate their needs, and could reward those who generated the most profit. But in order to identify best customers today, you need customer data, and you need to market to them accordingly.
In four well-documented, carefully graphed and charted case studies, the report shows you exactly how customers have been successfully moved up from low-spending segments of companies' customer bases to top-spending segments without even using a loyalty card - it's all down to the incentives, the timing, the compelling offer you make, and the gradual adjustment of customers' habits and shopping behaviours.
Loyalty, lifetime value & profitability
We know that, in theory, building customer loyalty increases profits. But how can we measure how effective it is in reality? How can we predict the effect an investment in loyalty will have on the future of the business? While no method can ever be perfect, measuring loyalty's effect on Customer Lifetime Value (CLV) is one of the best - and most accurate - ways, particularly if the management wants to maximise customer profitability during the whole of each customer's life cycle with the company.
The increased interest that managers have shown over the past decade or so in CRM, customer databases, data warehouses, and data mining is a positive development. Having such a system in place provides essential data that can be analysed to provide better business intelligence and decision-making support.
There are many business models that can be used to get an overall picture of the kind of relationships and correlations that form the basis of CLV calculations - many of which are examined in detail, with supporting research and case studies.
How to building your own CLV model
Chapter 6 of The Loyalty Guide examines those models and formulae, with easy-to-follow examples that demonstrate the financial advantage and power that predictive CLV calculation offers your business. It also looks into some of the alternatives to direct investments in customer loyalty that businesses have employed in the past, including:
* Production rationalisation
* Mass marketing
* Market share
* Quality management
* Service management
* Relationship management
The human aspect of Customer Loyalty
Clearly the human aspect of loyalty programmes is of paramount importance. Loyalty and even satisfaction are human emotions. Actions that might make one person loyal could well repel someone else. Even worse, something that might engender feelings of loyalty in someone on one day might be the last thing they want on another day.
So can a loyalty card really create loyalty? Well, loyalty cards are just one element of the overall shopping experience, rather than the prime reason for choosing a particular store, while factors such as price, quality, service, and convenience contribute more to fostering loyal shoppers, according to consumer research food and grocery think-tank, IGD. For the majority of loyalty card users in IGD's survey, the card itself was not the key driver in store choice, and shoppers considered it as a 'nice to have' extra. However, those who said they use them regularly also said they see a clear value in doing so. In fact, if the loyalty programme leads to better service and a strengthened relationship, then yes, loyalty is often engendered and nurtured, and the results are higher spending and more frequent visits.
The psychology of loyalty explained
The Loyalty Guide gathers together a range of research into consumer psychology and attitudes, and the knowledge that experience brings, from a wide array of sources (both commercial and academic). While there is a surprising correlation between most of the findings, there are also differences of opinion that are unlikely to ever be settled completely. Research included in the report illuminates a variety of both loyal and disloyal behaviour - for example, the top three reasons for joining a loyalty scheme:
* Benefit of being rewarded for products and services frequently used (54% of consumers)
* Greater discounts on products and services (49% of consumers)
* Special member-only perks (42% of consumers)
Reward drives behaviour. We teach our pets how to behave by rewarding them when they behave correctly, and by not rewarding them when they don't. Reward the behaviour that you want and don't reward the behaviour that you would like to discourage, and behaviour will follow reward - within reason. But, paradoxically, while a big reward reinforces desired behaviour better than a small reward, when rewards are discontinued, those who have received big rewards are more likely to return to the old buying pattern than those who received small rewards. So the warning is clear: never, ever let your best customers feel that you are withdrawing privileges from them.
It follows from this that the reward is a crucial part of any loyalty programme. It has to be desirable enough to change the behaviour of customers. In fact, if the reward is really well chosen, it will be attractive to the target group of customers, and not attractive to customers who are not really valuable to the business. It also has to be affordable, and balancing the two sides of the desirability/affordability equation is tricky. Our report examines the key functions of a loyalty reward, offering sound advice on what consumers might value, and what might disappoint them. It also walks you through the properties or attributes that are always found in successful loyalty rewards.
The identifying token
There are many ways of tracking customers' purchases in order to later provide them with a reward. Whether the reward is a simple discount, a more targeted discount, points which lead to a gift from a catalogue or later money-off offer, or even extra services, there has to be some means of recognising each customer at the point of sale. This is usually an identifying token that the customer presents when making a purchase.
Technology-wise, the token itself can range in sophistication from a printed membership card through to bar-coded tags, magnetic stripe cards, PET cards, thermochromic cards, chip cards, smart cards, RFID cards or tags, or even biometric devices such as finger print recognition.
What data should be collected, and why?
Many of the benefits of creating and operating a customer loyalty programme, or implementing a customer relationship management (CRM) system, come from the collection, analysis, and use of data. The more data we can practically use, the better: customer demographics, preferences, lifestyle and life stage, transaction history, returns, and even customer service event history.
The loyalty programme gives us a way of identifying specific customers, and tying their demographic records to their transaction records in the back-end database (whether that be an in-house collection of databases, an enterprise-wide CRM system, or some other data warehouse that's being updated, analysed, and used across the whole business).
Business intelligence starts with data. The uses of the resultant data, given all the technologies that are now available to analyse it and turn it into useful support for business decisions, are potentially endless.
Apart from delving deep into the technical side of databases, data warehouses, data relationships, and structures, The Loyalty Guide also details the how, when, where, and why of data collection and aggregation. It describes the many uses that customer data can be put to, including (to name a few):
* Customer behaviour profiling
* Customer lifestyle & demographic profiling
* Customer product preferences and repertoire
* Customer targeting and differentiation
* Best customer marketing and win-back
* Product category relationships & cross-selling
* Planning and merchandising
* Online shopping suggestions
* Pricing policies
Communication with consumers
There are many more communication channels available today than there were before the rise of interactive and electronic media such as the internet and mobile telecommunications. Communication with consumers and other businesses can take place by mail, telephone, fax, text message (SMS), multimedia message (MMS), e-mail, instant messaging (IM), voice over IP (VoIP), internet chat rooms, web sites and bulletin boards, and other internet-based systems including video conferencing and meeting sharing systems such as the Microsoft Netmeeting service. Each has different cost implications to the business, and different perceived benefits to the consumer.
Avoid being caught in a spam trap...
But with each channel of communication comes a unique set of challenges: people don't like junk mail, or 'spam' (unsolicited commercial e-mail), or unsolicited sales telephone calls. They complain about faxes wasting paper, and they don't want their mobile phone invaded by irrelevant advertising text messages. They don't want to run up bandwidth bills for receiving unwanted MMS communications on their internet mobile phone, and they don't want their PC's instant messenger program popping up unwelcome advances from companies they've never dealt with. And the list goes on.
But it's not all bad news, either! There are ways, means, laws, and ethical practices that cut through the communication barrier for all of these channels, allowing you to communicate and build relationships with existing customers and sales prospects alike. The report walks you through the many practical ways of making sure your e-mails don't get stopped, making your messages easier to read, and being consumer-friendly enough to have people want to read them. And the same goes for SMS, direct mail, advertising, inserts, radio, the web, call centres and even front-line employees talking to customers in-store.
Sector specific insights
Different sectors are viewing and approaching loyalty differently, and are different stages of development, both in business terms and in the minds of consumers. Moreover, there are regional, national, and international variations and forces at work which mean that a road-map to loyalty in your geographical areas of operation is all the more important. For example:
* Loyalty on the internet
Building loyalty online is always going to be a challenge because of the ease with which consumers can find new suppliers and change their allegiances. There are challenges for those companies that choose the online loyalty path instead of a systematic programme of low pricing and discounts. Loyalty requires a relationship, and the ability for the programme's operator to collect high quality, accurate data about consumers and their preferences and spending habits. But many consumers, while they are willing to give accurate personal details in-store, or on a printed application form, are unwilling to give out personal details in the online environment. Part of this unwillingness is certainly attributable to the idea that the internet is not secure, and that it is too easy for personal information to be gathered, analysed, copied, sold, distributed, or abused.
Another big problem still facing the internet at large is that it has traditionally been seen as a 'free for all' resource, and many internet users still believe that - with the exception of the most obvious online retailer - everything on the internet should be free of charge, without any ties or obligations, and without the need to identify yourself. Most don't realise that they are in fact leaving a massive electronic trail behind them when they browse the web, and mistakenly believe that anonymity is not only possible but that it should be the norm for internet usage.
So, assuming the consumer is willing to trade their data (personal, behavioural, and transactional, for example) for points with an online store, the concept of online loyalty faces a major problem in itself. The market for any given product or service is very large because the internet is (generally speaking) fast, global, and convenient to use. Entire web sites have sprung up with the specific aim of getting the customer to shop around (such as shopping.com, kelkoo.co.uk, and Google's froogle.com), all of which make their comparisons based largely on price and availability rather than on service, loyalty programmes, or relationship benefits. While such sites are undoubtedly an excellent resource for consumers, online retailers will find it increasingly difficult to differentiate based on service or loyalty benefits.
The internet isn't all bad news for the loyalty marketer either. Never in the history of marketing has communication with customers (both existing and potential) been so cheap, so flexible, so fast, or so easily monitored. An e-mail is currently one of the cheapest communication channels available to marketers, and one of the most flexible too: there are no print runs, and each and every e-mail (given the right database and IT infrastructure) can be personalised not only in terms of the customer's name but right down to the message's content, images and offers. E-mail is unlike traditional direct mail in that the marketer can tell almost immediately when a message could not be delivered, meaning that consumers with 'dead addresses' can be immediately swapped onto reclaim campaigns to try to re-acquire their current e-mail address and updated contact details.
* Brand loyalty
There would be no point in spending marketing dollars building brand awareness if customers don't buy the brand again after they've tried it the first time. Today's brand marketers all have the same aim: to encourage brand loyalty - the situation where consumers choose a brand over its competitors and private label equivalents because they want to.
A good definition of brand loyalty is that given by Jan Hofmeyr and Butch Rice, in their book 'Commitment-Led Marketing': "Brand loyalty is the tendency of someone to buy a brand again and again because they prefer it over others."
Research shows that the brand loyalty of customers has fallen steadily over the past two or three decades. Results vary, but it's probably fair to say that today's average consumer is only 75% to 85% as loyal as the consumer of the 1970s or 80s. So why did this happen? There are several reasons, just a few of which are:
1. There is much more choice today: the number of products and brands within most categories has increased greatly.
2. The number of advertisements seen by consumers daily has increased enormously, especially since new channels like the internet, email and SMS have arrived on the scene.
3. Modern consumers are more sophisticated and more likely to think for themselves and to try different products.
4. There is more comparative information available, on web sites and in consumer magazines and the national press.
5. The standard of service (and of products) has in many cases improved to the stage where there is not much difference between brands.
6. Price competition has increased.
In a full chapter on Brand Loyalty we focus on the successes and techniques seen most recently, and also the problems facing brand marketers and how they can be overcome. We look closely at which groups of consumers are worth marketing to, and how much they're worth, along with some sector-specific branding ideas and research, market variations in brand loyalty, and tools that can be used for brand marketing. We've also taken the opportunity to focus on research and trends that reveal answers to common branding problems. With brand loyalty foremost in mind, it answers common branding questions such as:
o Which are the big brands, and why?
o What are the problems facing brand marketers?
o How can branding problems be overcome?
o Which groups of consumers are worth marketing to?
o What does sector-specific branding research reveal?
o What national variations are there in brand loyalty?
o What tools for brand marketing are available?
* Business to Business loyalty programmes
Business to business loyalty programmes and incentive schemes seem, on first consideration, to be a great idea: a way of encouraging one business to continue doing business with another. But they also come with their own pitfalls that don't occur in consumer-based loyalty programmes. For example:
o Is it ethical to reward a client's employees to make decisions based on personal gain?
o Who should be rewarded: the business owner, management, employees, the business itself, or all?
o Is the person who gets the benefits always the one who makes the actual purchase decisions?
The list of problems grows or shrinks depending on the industry sector involved, and on how well the relationship between supplier and client is defined and controlled. For example, there is little point in a CPG manufacturer rewarding the product buying clerks at a supermarket's head office when the decisions on product range, quantity, and shelf space allocation are taken by others (such as marketing and merchandising managers). This represents a tightly controlled buying environment in which direct rewards for employees are fruitless.
However, in a more flexible (and typically smaller) business environment, buyers often have authority over stock control, product range, quantities, and even merchandising arrangements. In these cases, a B2B loyalty programme that rewards the buyer would probably work - even if it stands on unsteady ethical ground.
There is another situation where B2B loyalty schemes work very well: channel sales partner programmes. These are where a manufacturer directly rewards the sales staff of companies that resell its products. This kind of selling incentive is very constructive because it benefits both businesses equally, in terms of greater sales and profit. By generating strong engagement between channel partners' sales people and the products themselves, the resultant increase in product knowledge and familiarity means that a more authoritative line can be taken in the sales process when dealing with end users. A fine example of this kind of programme's success is the Indian networking specialist Nortel, which achieved 40% growth in channel sales after one year of running such a programme, for which we have provided a detailed case study in our B2B chapter.
* Supermarket loyalty initiatives
Supermarkets face intense competition, not only from other supermarkets but also from warehouse clubs, supercentres (like Wal-Mart) and convenience stores. When Sir John Cohen, founder of the UK-based Tesco empire, brought the idea back to the UK from the US soon after World War II, the model for supermarkets was to "pile it high and sell it cheap". Many of the original supermarkets were like glorified market stalls. Then came the concept of self service, and the distant ancestor of the modern supermarket was born.
Today, leading supermarkets are among the most sophisticated retailers in the world. They lead most other sectors in customer data collection and analysis, in stock management, in level of customer service and in retail innovation. Metro Group in Germany has already started the technological charge with its Future Store (www.future-store.org) initiative, which automates just about everything a customer can see, do, or touch in the 'supermarket of the future'. As we predicted in The Loyalty Guide Volume I (the 2004 edition), supermarkets are leading the way.
Which retailers led with customer segmentation based on purchases, with closely targeted offers to specific customers, with dedicated customer service desks, with designated parking spaces for mothers with small children, with umbrella service to the car on rainy days? In many cases, the supermarkets.
In the report's chapter on Supermarkets we look at the dynamics of loyalty programmes in the supermarket sector, then in close detail at some of the leading programmes.
With respect to customer retention strategies, supermarkets can be broadly divided into three groups:
1. Those that rely on every-day low prices (EDLP) to keep their customers;
2. Those that rely on loyalty programmes for best customer marketing;
3. Those that rely on excellent service and ranges of products.
Of course, there are many shades in this spectrum and some supermarket chains adopt all three methods to varying degrees.
* Loyalty to other retailers
In general retail, today's key need is to focus on what drives loyalty programmes, what customers actually prefer, and what the future is likely to bring. Most retailers accept that they need to know more about their customers, and that the knowledge should be centrally recorded so that it is available to employees when they need it.
In this chapter we examine what makes consumers shop the way they do, what makes them choose one retailer over another, and illuminate the dynamics of loyalty programmes in general retail sector, looking in detail at some of the leading programmes, operators, and developments in the field. We also examine the effectiveness of loyalty programmes, and follow current and future shopping trends. Also highlighted are the many problems of customer retention strategy planning in the supermarket and general retail sectors.
We have provided a great deal of coverage of retail loyalty programmes around the world in the main report itself, and have also created a reference directory of major loyalty programmes in all countries, broken down by sector (Appendix C).
* Airlines and frequent flyer programmes
The airline industry has been amazingly active over the past two years, with barely a day passing without a new programme, a new service initiative, a new redemption feature, or a new promotion springing up somewhere in the world.
A lot of this activity has focused on adding value (such as extra travel benefits and personal luxuries) for the upper tiers of airline frequent flyer programmes. This is a good focus to keep, of course, because these frequent flyers are the most profitable customers.
The higher classes of travel (business class, premium class, first class, and half a dozen other names describing non-economy classes) are so much becoming the focus of airlines' attention that there are now complete airlines devoted to first class or business class travel, without a single economy seat on their aircraft. This report's authors predict that this trend will increase, driving a widening wedge between airlines that carry economy passengers (for whom personal service can be expected to decline in line with decreasing prices) and those that carry business and luxury passengers (for whom personal service will increase thanks to the lower financial and staffing overheads caused by the loss of economy class).
In the Airline chapter of the report we provide full details and reference for over 30 leading airlines and their frequent flyer programmes, including:
· Air Berlin (Top Bonus)
· Air Canada (Aeroplan)
· Air France & KLM (Flying Blue)
· Air New Zealand (Airpoints)
· Alaska Airlines (Mileage Plan)
· America West (FlightFund)
· American Airlines (AAdvantage)
· Bangkok Airways (FlyerBonus)
· British Airways (Executive Club)
· China Southern (Sky Pearl Club)
· Continental (One Pass)
· Delta Airlines (SkyMiles)
· Emirates (Skywards)
· Frontier Airlines (EarlyReturns)
· Hawaiian Air (HawaiianMiles) · Jet Airways (JPMiles)
· JetBlue (TrueBlue)
· Kingfisher Airlines (Power Flyer)
· Lufthansa (Miles & More)
· Malaysia Airlines (Enrich & Grads)
· Midwest Airlines (Midwest Miles)
· Northwest Airlines (WorldPerks)
· Qatar Airways (Privilege Club)
· SN Brussels Airlines (Privilege)
· South African Airways (Voyager)
· Southwest Airlines (Rapid Rewards)
· United Air Lines (Mileage Plus)
· US Airways (Dividend Miles)
· Virgin Atlantic (Flying Club)
· Virgin Blue (Velocity Rewards)
· Virgin Express (Flight Club)
* Loyalty to hotels, resorts and casinos
In mid-2004 almost half (49%) of surveyed visitors to hotel branded web sites claimed they did not belong to any hotel loyalty programme, according to iPerceptions and Hospitality eBusiness Strategies. This revealed an untapped market and an opportunity to increase customer loyalty. Another key finding was that hotel brands need to enhance almost every aspect of their web sites to meet the increasing requirements of major customer segments, as less than 19% of all visitors to branded hotel web sites characterised their experience as "excellent".
According to the Rewards Network, in today's competitive hospitality market, many hotel operators are adding frequent guest loyalty programmes to foster customer relationships, attract new customers, and encourage longer stays, which suggests that rewards programmes are seen as being more effective in creating loyalty to hotel brands than simple discount-based promotions and incentives.
Interestingly, research by Phoenix Marketing International has found that only a small proportion of big-name hotel frequent guest programme members could correctly identify all the participating hotel brands at which they stand to benefit from their membership. Members of the Hilton HHonors, Radisson Gold Rewards, and Starwood Preferred Guest programmes had the lowest rate of recall for hotel brands participating in the loyalty programme. However, we note that hotel groups that have a greater number of brands and partners are more likely to rank lower than those with few partners, because it is harder for consumers to recall long lists of names.
In the Hotels, Resorts and Casinos chapter of the report we provide full details and reference for 15 of the leading hotels and their frequent guest loyalty programmes, including:
· America's Best Value Inn (Value Club)
· Best Western (Gold Crown Club)
· Carlson Hotels Worldwide (GoldPoints)
· Cendant Hotels & Resorts (TripRewards)
· Choice Hotels (Choice Privileges)
· Coast Hotels & Resorts (Coast Rewards)
· Delta Hotels (Delta Privilege)
· InterContinental (Priority Club Rewards)
· Hilton (Hilton HHonors)
· Holiday Inn (eHost initiative)
· Jameson Inns (Stock Awards)
· Marriott (Marriott Rewards)
· Starwood Hotels (Preferred Guest)
· Travelodge Canada (Guest Rewards)
· Wyndham (Wyndham ByRequest)
* Travel and tourism loyalty
Our chapter on loyalty in general travel and tourism markets looks into recent developments and innovations in the general travel and tourism sector that are not directly associated with airlines, frequent flyer programmes, hotels, holiday resorts, frequent guest programmes, casinos and frequent player loyalty schemes.
It includes loyalty and customer satisfaction-related developments throughout the sector, worldwide, and the findings of surveys and research concerning cruises, travel sellers, travel incentives and loyalty schemes, rail operators, regional and national tourism initiatives, and car rentals.
Case studies, programme summaries and a reference guide provide details of global car rental loyalty programmes in particular, including:
o Avis Preferred Service (for individuals)
o Avis Corporate Awards (for businesses)
o Budget's RapidRez programme
o Dollar Express
o Enterprise's Corporate Class Rental programme
o Europcar Privilege Card (in Germany)
o Hertz #1 Club
o National's Emerald Club (for individuals)
o National's Business Benefit Program (for businesses)
o Thrifty's Blue Chip Rewards programme
* Loyalty to dining, drinking, and recreation
Developing technologies are beginning to play a greater role in restaurants and diner satisfaction initiatives. There are now table-mounted wireless consoles that diners can use summon waiters, and loyalty programmes that provide the ultimate in personalised service, where the waiter greets you by name, seats you at your favourite table, serves you your usual drink, and can even suggest menu items in accordance with your personal tastes. Biometrics and RFID technologies are even being employed to speed things up throughout the meal. In this chapter, we explain the latest research, technologies, applications, loyalty programmes, and market developments.
In the world of fast food, consumer behaviour patterns and preferences are beginning to re-shape the dietary and service landscapes, end even the major chains (such as Burger King, McDonald's and Subway) are adjusting the way they do things to please ever-more health conscious consumers. Coffee houses are stepping up their efforts to engender not only loyalty but also inertia through the introduction of prepaid gift cards and frequent-beverage loyalty programmes. Even beers and spirits are beginning to develop loyalty programmes of their own. In this chapter we examine not only the consumer's view these establishments but also the strides that have been taken toward satisfaction and genuine loyalty.
In the world of sports, customer loyalty programmes and benefits are being combined into payment programmes, ticketing systems, season ticket allocations, merchandise sales, in-stadium concessions, and even local out-of-stadium retailers. No longer is sports marketing restricted to sponsorships and track-side billboards. In the USA, we've seen innovative team-based programmes supported by the MLB and NFL, as well as NASCAR, various golf clubs and other sporting associations - all of which are detailed in this chapter.
Key topics covered in the chapter include dining out, fast food loyalty programmes and promotional strategies, coffee houses, alcoholic beverages, entertainments, and sports, all with world-wide coverage.
* Loyalty in the automotive & fuel sector
Cars are now almost a commodity, and car manufacturers have a problem. It might almost be fair to say that the most noticeable point of differentiation between competing, similar marques is the dealer who sells the car. Certainly, that seems to be the area where most can go wrong, and most complaints arise. So much depends on the way the car is sold and particularly the way that the after sales contacts and service are carried out. It's quite possible that it's for this reason that research shows less loyalty to dealers than to manufacturers. To build loyalty to the marque, the manufacturer has to produce an attractive, desirable, reliable vehicle at the right price. Most of them would seem to be very good at doing that.
It is essential that car dealers - the potential weak link in the chain - are single pointed and focus on finding out what their customers want, why they want it, and work out ways of meeting these needs as closely as possible. For this reason, much of the research quoted in the automotive chapter of the report is about what customers want, what they don't want, and the reasons why they buy or reject certain makes.
Generating customer loyalty is always more difficult in a sector where contacts are infrequent. And, while new cars with very lengthy service intervals may be very convenient for the customer, they make it even less likely that the dealer and customer will have many opportunities to build a relationship. Every contact - rare as they are becoming - must be treated with great care and delicacy if any loyalty is to be built.
And fuel retailers are also facing a full-scale battle
The forecourt sector (fuel retailers - that is, 'petrol' to the Briton or 'gasoline' to the American) was one of the first sectors to become involved in loyalty programmes; in fact, in the early 1990s some people equated loyalty programmes with forecourt programmes. Many of the initial programmes were quite rudimentary and collected no useful customer data. Some gave a gift when a certain amount was spent on fuel - for example, a free drinking glass for each £5 spent. Not even the customer's name was collected. Others issued stamps or coupons for each purchase. When these were redeemed, the customer was sometimes identified. There are many hundreds of forecourt loyalty programmes around the world so, in this chapter, we have focused mainly on those in the UK, along with a selection of those in other parts of the world.
Traditional oil company fuel retailers in the UK have not had an easy decade. As well as losing market share to the supermarkets who have invaded the territory, profit margins have fallen. Petrol is a commodity - it is very difficult to build a customer base that is loyal to any particular brand simply because of the quality of the fuel. Retailers compete either on convenience - lots of sites at convenient places, service (added value like convenience stores on-site) or simply on price. All of these factors combine to make customer retention essential. So how has the sector faired? Well, it would seem that the consumer's familiarity with forecourt programmes has led them to expect these programmes as par for the course. We explain what fuel retailers have been doing in different countries, and how they are interacting with other retailers and market sectors to generate their own competitive advantage - sometimes getting downright sneaky!
* Loyalty to FSIs, banks and payment cards
The financial services sector is at different stages of customer relationship development across the countries of the world, with much of the most recent progress being made in the United States, Canada, Europe and Asia-Pacific.
Apart from the problems of providing, growing, and maintaining a financial services infrastructure that consumers are willing and happy to use, and while customer relationship management aims to build customer loyalty through the use of data capture, analysis, segmentation and improved service, the intense competition from newcomers (such as supermarkets' financial brands) provides its own problems.
Credit cards and debit cards present their own challenges, with most of them now being tied to loyalty rewards, consumer benefits, or cash rebates. So much so, in fact, that market research firm Packaged Facts predicted in July 2005 that 85% of consumer credit cards in circulation will be offering some sort of reward for their usage by 2009, suggesting that the appeal and value proposition of credit card loyalty rewards may be significantly devalued by then. So what has the industry been doing about this problem, and what can it do in the future? Our report explores all of these issues, and how the financial services industry as a whole can proceed while growing customer lifetime value and nurturing genuine customer loyalty.
We've identified and charted the key financial services loyalty and market trends, including coverage of banks, building societies, money lenders, insurers, internet banking, benchmarking efforts, secrets of successful FSI loyalty and CRM initiatives, and of course case studies and summaries of major credit card loyalty initiatives worldwide, including:
· American Express
· Bank of America
· Bank One
· Citi Group
· Garanti Bank
· US Bank
... and many others
* Loyalty to telecoms companies and utilities
Telecoms operators across the world have tried a number of different techniques to nurture customer loyalty and reduce the almost inevitable churn produced by the current trends of number portability and mobile handset subsidies. Some operators have paired up with existing loyalty programmes while others have set up their own schemes. Yet others have chosen to run shorter-term promotions in their bids to both acquire and retain customers.
Much of the loyalty-related activity has come from the mobile telecoms sector, while fixed line providers - particularly in the USA - seem to have been concentrating more on the bundling of services, internet and cable broadband services, and improvements in service and customer satisfaction.
And much of the development in the utility sector in the past couple of years has been in the areas of improved quality and reliability of service - key hygiene issues for power and water providers at least - and also in the area of customer service and billing system improvements.
* Loyalty in non-profit, healthcare & other sectors
In our chapter on loyalty to the charitable, educational, healthcare and government sectors, we examine donor relationship management, healthcare loyalty initiatives, and other citizen loyalty and relationship initiatives, including government and private sector operations. Covering the various options available for cause-related marketing, fund raising, as well as various lifestyle and self-improvement programmes, we explain where the successes have been, and why, and how they did it. The key topics covered in the chapter include charity & community initiatives, education loyalty and reward schemes, government initiatives (including e-government and citizen relationship management), healthcare loyalty programmes and lifestyle improvement initiatives, and loyalty programme and technology developments in a variety of other sectors.
Metrics and Analysis to support your loyalty initiative
The business case for any loyalty programme needs to be well supported and justified, not only in the planning stages but on a continuing basis after implementation, and during development. The application of solid mathematics, statistics, and scientific measurement is the only way to prove the effect the programme is likely to have on profitability and the customer base. And the application of regular and meaningful management reporting is the only way to monitor all the factors involved both before and after implementation of the programme.
In the report, we provide full and detailed explanations of the various metrics, formulae, and indexes that build the scientific case for customer loyalty, analysing every last detail of customer behaviour, transactional data, and even demographics. A range of ratios and comparisons are included that provide business decision support, along with mission-critical financial and customer-flow reports that guide strategy decisions across the board, covering subject areas such as: Loyalty programme metrics; Statistical calculations; Analysis reports and tools; and RFM segmentation.
What's the future of loyalty?
The only feasible way of predicting trends is to examine what has happened so far and then make projections from that. Of course even that is fraught with danger because paradigm shifts have a nasty habit of turning up just when least expected. Who would have predicted even ten years ago that the mail and the fax would have been relegated to the extent that they have by e-mail? There is also an apocryphal observation, attributed to many different origins, about what would have been predicted had the microchip been around to help in the late eighteen hundreds. Apparently, horse-drawn traffic in London was increasing in volume so quickly that it would have been quite reasonable to predict that by 1970 the whole of London would be thirty feet deep in horse manure!
The traps, pitfalls, and warnings of the past have always been useful for planning action in the future - the worse the failure, the more widely the lesson is learned. Likewise the success of the past rapidly become role models for the future. But at the pace with which technology, retailers, service providers, general commerce, and even consumers are shifting and changing, the time has come to use increasingly predictive science to find the pitfalls before we reach them. In some sectors - particularly those where churn is traditionally high (such as freshly deregulated and highly saturated industries) - the very survival of a business may depend on its ability to see into the future. Make sure you know what's coming!
Find the information you want...
Full details of the report, including a full executive summary, table of contents, free downloadable sample texts, pricing and ordering information, and an online 'Report Search' facility, are all available online at www.TheLoyaltyGuide.com.