Feb
4

The Case for Customer Loyalty

The Case for Customer Loyalty

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. When one customer left, another took their place. In most cases, there was no relationship between customer and supplier.

Shops expanded, big stores began edging out the smaller corner shops and the days of the ‘mom and pop’ shop were numbered. The kind of relationship built up between small shopkeepers and their customers became a thing of the past. The consumer opted for bigger, more modern stores, with more choice – and anonymity. Not only did storekeepers no longer know their customers’ names and preferences, they didn’t even know how many customers they had. They had no idea who spent a lot or who didn’t. And most importantly, they had no way of telling when a dissatisfied customer left. Were they even interested? After all, there were plenty more where that one came from.

It was a good time for retailers. As their stores grew, they became more and more powerful. Not only could they buy merchandise on better terms, but they could almost force their customers to buy their more profitable lines. Mass marketing had arrived.

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 later on, as the media fragmented, it became less productive: more advertisements were needed to reach the same audience.

However, the big retailers got better and better at retailing. Their merchandising improved, their customer service improved and they matched each other on prices. Their stock control improved, resulting in less waste and fewer out-of-stock lines. The playing field was leveling out. They were almost all uniformly good, and it became harder and harder to differentiate themselves from their competitors.

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. It didn’t look quite so optimistic any more. Suddenly, it made sense to retain regular customers rather than simply relying on new ones turning up.

Furthermore, in many instances, globalization has made it more important to build loyalty. The motor industry provides a good example. Fifty years ago, Americans tended to buy American cars, and there were relatively few imports. Today, cars are imported into the U.S. from all over the world to the extent that, in some cases, it is quite difficult to attach a country of origin to any particular model. Loyalty to a specific make now depends more on the actual car and the service offered than on national pride.

But how could organizations with thousands or even millions of customers apply the principles of mom and pop marketing to their massive empires? Advancing technology came to their aid. Fortunately, this has advanced faster than anyone could have predicted. Nearly forty years ago, Gordon Moore, co-founder of the computer chip producer Intel, predicted that the number of transistors that could be put on a computer chip would double every year. He later altered this to every two years. In practice, events have run somewhere between the two, and this is fairly typical of advances in computer technology. Databases that, a decade ago, would have required massive investment and a team of operators can now be run on a desktop computer and can respond to “what if?” questions with almost instant answers.

Once the case for the value of nurturing loyal customers was made, it began gathering momentum. There had been isolated programs before but, within a few years, they were everywhere. Some were carefully thought out responses to the solid argument of the value of loyal customers while others were simply ‘me-too’ copies of what competitors were doing. Many missed the point completely. On the surface they appeared much the same as the good ones but their objective was simply to buy customers’ loyalty. Their operators thought that the reward would be enough to bring customers back time after time. But it didn’t take long to become apparent that they were mistaken. Customers simply carried many loyalty cards and collected points wherever they shopped. They were just as promiscuous as before.

The point that the retailers were missing is that while a simple reward may well have an effect on sales, it doesn’t help the retailer to improve his company’s core offering to the customer.

The smarter operators used loyalty programs not to buy repeat visits but to buy information from their customers in order to learn more about them: who their most profitable and least profitable customers were, what they wanted and what would be most likely to make them loyal. This information was then used to guide the policies and even the culture of the business, and customer-centricity was born. True relationships between supplier and customer became possible for the big players as well as for the small ones. The same old techniques that had been used so successfully by mom and pop stores so many years before could now be used by retail giants as well: get to know who your customers are, what they want and then meet those needs. In fact, the best of those that have become widely known as ‘loyalty programs’ are not that at all – they are actually programs that gather information which, in turn, is used to cultivate loyalty.

theloyaltyguide: an absolute goldmine of loyalty information | 2004 edition | thewisemarketer.com

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