By: Abhishek Mohanty (01) Ankur Sikka (07) Nikita Agarwal (25) Prerna Jain (28) Prerna Makhijani (29) Sushant Juggi (49

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Customer Loyalty Program

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´Betterµ Customers ² ´Betterµ Suppliers Enticing a new customer more expensive than getting a current one to purchase again

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Monitoring customer behavior Product type decides customer·s willingness for a relationship

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80/20 law Customer membership cards

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Maintain sales, margins, and profits Increase loyalty and value of existing customers Induce cross-product buying Differentiate brand Preempt entry of new brand Preempt competitor·s loyalty program

€ Strategies

designed to replace ´disloyalµ

customers € Only 10% of buyers are 100% loyal to a particular brand € Polygamous Loyalty better describes actual consumer behaviour € It is unlikely that this fundamental behaviour could be altered with loyalty programs

more people to buy the brand € Gain more distribution outlets € Entice distributors to stock the brand € Build presence in the marketplace € Short term lucky break can be attained by loyalty prorams
€ Get

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Functional, economic, psychological benefits ² sources of customer value

‡ 3 Psychological effects (a) Loyalty to brand or to program ? (b) How buyers value the reward offered ? (c) The effect of timing

Loyalty to brand or to program
‡ Low/ high involvement product => big/ small incentive ‡ PRIMARY REWARD : program / product ‡ Ex : Pantaloons / GM

How Buyers Value Rewards ?
Rewards : helps to achieve loyalty to the product 5 elements that determine a program·s value: ‡ Cash value of the redemption rewards (ratio of the cost to acc. FF points) ‡ Range of choice of rewards (choice of flight destinations) ‡ The aspiration value of reward (exotic free travel > cash back offer) ‡ The frequency of achieving awards (points are required) ‡ Ease of use of the scheme.

Timing
‡ Rewards are powerful when the redemption are not delayed. ‡ Statements of accumulated points.

Claimed Benefits of Loyalty Programs
Loyal customers are less price sensitive
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May not be always true Positive correlation between brand loyalty and higher prices

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Price insensitivity driven by brand value and not brand loyalty

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More frequent buyers, hence expect volume discount

Loyal customers spend more with the company
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Weight of purchase matters most, not necessarily customer loyalty It is a function of better value offered than of any add-on loyalty program

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E.g. Business air travelers versus holiday travelers

Loyal customers pass on positive recommendations about their favourite brands or suppliers
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Is it loyal customer, customer in a loyalty program or any satisfied customer who says nice things?

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Little research data to demonstrate the percentage of loyal customers leveraging company·s marketing

€ Enhances

the value proposition of a product or

service

€ Total

cost calculation

€ Maximizes

the buyer·s motivation to make the next purchase

€ Consider

specific market situations in planning

Loyalty Programs that: a) Neutralize a competitor·s program b) Broaden the availability c) Enhance the product or service «..are worthwhile Else, these programs just provide extra benefits to the customers ««and are costly

€ Customer