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
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-market-
ing, 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 rela-
tionship marketing. But all define the same basic market-
ing approach: Identify, segment, grow and retain existing
customers by communicating and rewarding desired be-
havior.
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 market-
place.
•Consumers are smarter and expect more. As the gen-
eral population becomes better educated, consumers ap-
proach purchase decisions with greater scrutiny, and
they have access to more data for comparison shopping.
One example is the Nutrition Labeling Education Act es-
tablished in 1990 by the Food and Drug Administration,
which requires food companies to provide detailed nutri-
tional information on every package. This allows con-
sumers to compare the specific nutritional features of
every food product within a specific category.
Also, the Internet and the growing popularity of con-
sumer publications such as Consumer Reports and televi-
sion news shows such as Dateline and 20/20 give
consumers greater access to product information. With
greater scrutiny comes stronger expectations and de-
mand for product quality and customer service. To meet
these demands and emphasize differentiation and added
value, companies launch loyalty marketing programs.
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•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 loy-
alty 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 reten-
tion challenges. As a result, customer service levels are
eroding, particularly in fast food and mass merchandis-
ing retail. As consumers become frustrated with poor ser-
vice, longer lines and other service-related problems,
customer defection becomes a threat. The critical decline
in customer service quality also damages and severs rela-
tionships with formerly loyal and profitable customers.
•Price-based switching programs change expecta-
tions. 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 competi-
tive 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 indus-
tries, 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 in-
creased competition, and many are facing foreign compe-
tition 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 devel-
oping rapidly. The term “customer database” is out-

dated. Technical giants such as Microsoft and Oracle have
developed, and continue to enhance, data warehousing
systems that collect and mine valuable customer informa-
tion 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.
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 con-
sider. 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 differentia-
tion, these companies look to establish increased value by
developing loyalty marketing strategies. Pilot programs
already are operating in early-adopting states. Legisla-
tion signed in 1999 by Texas Gov. George W. Bush pro-
vided 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 en-
ergy use evaluations. While this was the first program of
its kind, other major Texas utilities are developing similar
programs aimed at fostering loyalty.
From Marketing News, December 4, 2000, pp. 20, 22. © 2000 by American Marketing Association. Reprinted by permission.
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 cus-
tomers to look for alternatives. This trend has been espe-
cially pronounced in the financial service industry where
customers struggle to keep up with the logo changes in
their checkbooks.
•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 accu-
rately attribute incremental revenues to marketing dol-
lars spent.
•Competitors are doing it. Loyalty marketing has be-
come 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 ex-
pect them and compare benefits and rewards of compet-
ing companies. As a result, competitors are racing to
introduce new perks, better benefits and some other ele-
ment or twist that no other company offers.
These trends pervade every market situation, and
companies are either jumping on board with loyalty mar-
keting, 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.