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


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.

‡ 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


Price insensitivity driven by brand value and not brand loyalty


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


E.g. Business air travelers versus holiday travelers

Loyal customers pass on positive recommendations about their favourite brands or suppliers

Is it loyal customer, customer in a loyalty program or any satisfied customer who says nice things?


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

€ Enhances

the value proposition of a product or


€ 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