Article 3 LOYALTY • The rules have changed
10 things to know about customers By SHERRIE E. WEHNER
More and more, companies are realizing that their
•The Internet has led to disloyalty. The Internet as a distribution channel for product sales and information has caused many consumers to change buying habits and methods. Researchers report record-low consumer loyalty in the Internet environment. •Low unemployment is squeezing customer service. As the labor pool shrinks, so does the quality and skill level of available labor for frontline customer service jobs. Additionally, retail organizations and service-based call centers face increased employee recruitment and retention challenges. As a result, customer service levels are eroding, particularly in fast food and mass merchandising retail. As consumers become frustrated with poor service, longer lines and other service-related problems, customer defection becomes a threat. The critical decline in customer service quality also damages and severs relationships with formerly loyal and profitable customers. •Price-based switching programs change expectations. Most of us have gotten a tempting offer to switch telephone service: Switch your long distance service to the company that’s calling, and it’ll send you a check. Some were worth $20, some $50, and during extremely competitive periods, some companies offered as much as $100. These price- or cash-based offers have taught consumers to be on the lookout for the next best offer. But in many industries, loyalty marketing programs have helped companies establish value and create barriers to exit. •The global market introduces new competitors. As the global economy opens, U.S. companies are seeing increased competition, and many are facing foreign competition for the first time. Many use loyalty marketing initiatives to establish stronger value propositions in the hopes of blocking foreign threats to market share. •Customer-focused marketing technology is developing rapidly. The term “customer database” is out-
most precious asset is their existing customer base. As a result, the traditional marketing mix, which has focused heavily on gaining new customers through mass-marketing, is evolving. Marketers are moving funds from their advertising budgets and allocating them for customer loyalty and retention programs, which go by many names, including loyalty, frequency, retention and relationship marketing. But all define the same basic marketing approach: Identify, segment, grow and retain existing customers by communicating and rewarding desired behavior. Here’s a brief look at the 10 most important trends in loyalty marketing affecting almost every company selling almost every kind of product in almost every marketplace. •Consumers are smarter and expect more. As the general population becomes better educated, consumers approach purchase decisions with greater scrutiny, and they have access to more data for comparison shopping. One example is the Nutrition Labeling Education Act established in 1990 by the Food and Drug Administration, which requires food companies to provide detailed nutritional information on every package. This allows consumers to compare the specific nutritional features of every food product within a specific category. Also, the Internet and the growing popularity of consumer publications such as Consumer Reports and television news shows such as Dateline and 20/20 give consumers greater access to product information. With greater scrutiny comes stronger expectations and demand for product quality and customer service. To meet these demands and emphasize differentiation and added value, companies launch loyalty marketing programs. 1
Article 3. 10 things to know about customers •Mergers and acquisitions can upset customers. For many industries, acquire-or-be-acquired is the name of the game. Mergers and acquisitions can have a significant impact on brand and product loyalty, and may cause customers to look for alternatives. This trend has been especially pronounced in the financial service industry where customers struggle to keep up with the logo changes in their checkbooks.
dated. Technical giants such as Microsoft and Oracle have developed, and continue to enhance, data warehousing systems that collect and mine valuable customer information in real time. And marketers are incorporating these systems with software innovations like E.piphany’s E5 to use the data for smart and ROI-based loyalty marketing programs.
•Mass media costs are increasing. Advertising is more expensive, and marketing budgets are getting tighter. The average cost of a 30-second spot during the 1986 Super Bowl was $500,000. That number reached $2.2 million in 2000, so marketers need to drive increased ROI on their marketing budgets. This trend fosters loyalty programs, because loyalty marketing focuses on existing customers whose behaviors and responses can be tracked, and marketers can pinpoint response and accurately attribute incremental revenues to marketing dollars spent.
Loyalty programs meet many needs •Deregulation makes choice more complicated. First, we had to choose long distance telephone service, and in the beginning, we had only price to differentiate among the big three. Eventually, large advertising budgets and price-based switching programs gave us more to consider. Now, deregulation gives us more choices to make. Soon, we’ll be inundated with marketing campaigns for local telephone service, cable, electricity and even gas, as utility companies compete for customers for the first time. Challenged with selling commodity-based service products offering little opportunity for brand differentiation, these companies look to establish increased value by developing loyalty marketing strategies. Pilot programs already are operating in early-adopting states. Legislation signed in 1999 by Texas Gov. George W. Bush provided the impetus for loyalty marketing programs like the Selections program, sponsored by Dallas-based TXU (Texas Utilities), which offers customers a variety of added benefits such as consolidated billing and home energy use evaluations. While this was the first program of its kind, other major Texas utilities are developing similar programs aimed at fostering loyalty.
•Competitors are doing it. Loyalty marketing has become a table-stake in many industries. Almost every hotel chain, airline and credit card company offer some type of frequent customer program; customers have come to expect them and compare benefits and rewards of competing companies. As a result, competitors are racing to introduce new perks, better benefits and some other element or twist that no other company offers. These trends pervade every market situation, and companies are either jumping on board with loyalty marketing, or they’re watching their customers go by on the competitor’s train.
Sherrie E. Wehner is director of marketing for St. Louis-based Maritz Loyalty Marketing, which is part of Maritz Inc., also of St. Louis.
From Marketing News, December 4, 2000, pp. 20, 22. © 2000 by American Marketing Association. Reprinted by permission.
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