Customer Loyalty Programmes and Clubs

Stephan A. Butscher

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781317155461
• Edition: 2
• Topic: Betriebswirtschaft
• Subtopic: Kundenbeziehungen

In every industry, and any company, customer loyalty marketing is an important pillar of corporate strategy. This second edition of Customer Loyalty Programmes and Clubs, explains how the key to effective protection against competition lies in identifying and offering your customers the right combination of financial and non-financial benefits. Stephen Butscher has reviewed the developments that have taken place since his original successful step-by-step guide was published and now includes 'pricing for customer loyalty' and 'e-loyalty' along with extra case studies. He takes you through all the necessary stages to research, plan and launch a programme that builds and develops the relationship between you and your customers, and emphasises value measurement and selection of the right benefits, enabling you to integrate the loyalty programme into every part of your organization. Customer Loyalty Programmes and Clubs includes case studies from some of the most successful companies, including Volkswagen Club, Kawasaki Riders Club, Swatch the Club, Porsche and many more.

PART 1

Customer Loyalty Programmes and Clubs

Changes in the market environment can quickly alter prices and technologies, but close relationships can last a lifetime.

(Regis McKenna)

CHAPTER 1

Why you should read this book!

Most customer loyalty programmes offer primarily financial (hard) benefits. In essence, they provide price discounts – and discounts are the last thing that creates loyalty among customers. Customers who buy your product or service merely because of its price will not continue to do so if they can find a better price elsewhere. The only way to create long-term customer loyalty is to establish a true relationship with your customers which is based not on financial incentives, but on emotion, trust and partnership.

This book presents a new approach to customer loyalty programmes. Step by step, it will help you create a benefit package that has a high perceived value for your customers, show you ways to quantify the value of potential benefits, and explain how to find the right combination of financial and non-financial benefits.

Customer clubs, the synonym for such value-oriented loyalty programmes used in this book, began in Germany, where they have been extremely successful since the mid-1980s. Until recently, German law forbade selling the same product to different customers at different prices, for example depending on whether or not they were members of a customer loyalty programme. Therefore, German marketers were forced to develop programmes that created loyalty without financial incentives. The biggest clubs have several hundred thousand members, yet manage to treat everyone as an individual – a step towards mass customization in customer contact. The success of customer clubs in the UK, Australia or the USA has proved that they can work all over the world. We will show that what makes clubs so successful is the creation of a powerful, value-oriented loyalty programme that aims to create a strong emotional relationship with customers and gives them real benefits.

For many years, organizations have tried to attract customers by such slogans as ‘The customer is king’, ‘The customer comes first’, ‘We guarantee total customer satisfaction’ or ‘We offer the best service’. This kind of attitude is extremely important for success in an environment of increasing competition and ever more demanding customers – but surprisingly few companies live up to their promises or to their customers’ expectations. They may only still be in business because their competitors are not doing any better.

A similar situation exists with customer loyalty programmes. Although there are thousands of programmes in existence, very few create real loyalty and devotion. About 90 per cent of the customer loyalty programmes we analysed while researching the first edition of this book were built on price-related benefits such as discounts, rebates and special offers. These programmes are nothing other than price cuts. During our research for this edition, we revisited many of these programmes, only to find that just a few had learnt their lesson. But those who did had shifted their focus to service elements, special treatment and other soft benefits. They understood that if any customer loyalty was built in the short term it was mostly a result of the discounts offered, rather than stemming from a strong emotional relationship to the product or service. In this book, we shall show that such an approach does not create the bond between the customer and the product, brand or company that is necessary for long-term loyalty. The only way to build long-term loyalty is to establish real relationships based on emotions and trust, by offering uniqueness and high perceived value in your loyalty programme. Financial benefits may be part of this, but they are not enough on their own.

This book will show, step by step, how a customer loyalty programme should be set up in order to create true relationships between seller and buyer. These steps include definition of target groups and goals, choice of programme type, internal and external communication, organizational structure and service centre, using the Internet, setting up and using a database, integrating the programme into the sponsoring company’s structure, and measuring the club’s success. We will show in detail how to filter out the most highly valued benefits from a wide range of possibilities, which methods can be used to quantify value, and how to find the best combination of non-financial (soft) and financial (hard) benefits. In addition, we will explain that a customer loyalty programme does not necessarily have to be a large drain on the marketing budget, but can be at least partly self-financing.

Part III is devoted to case studies from companies such as Swatch, Volkswagen and Porsche which explain how the concept has been put into practice. Each of the case studies has been written by a specialist from the sector or by the manager who was responsible for planning and launching the customer club and making it successful.

This book is for practitioners, for marketing professionals and managers who want to improve their company’s competitiveness by developing a customer loyalty programme that really works. It will also provide fresh ideas and approaches for those in the business or academic world who are concerned with relationship marketing, retention marketing, customer loyalty and other related subjects.

CHAPTER 2

Executive summary

Numerous forms of customer loyalty programmes have resulted from the efforts of countless companies, institutions and non-profit organizations to retain customers. Each of these types of programme has certain characteristics that distinguish it from the others. A customer club is only one type of customer loyalty programme; and even within the family of customer clubs there are several different types, such as end-user clubs, business-to-business clubs and so on. In general, the title of the loyalty programme is irrelevant. What counts is that it achieves its goal of increasing customers’ loyalty by offering true value. This book describes how to set up successful loyalty programmes in general – the term ‘customer club’ is simply a synonym for value-oriented loyalty programmes.

What is a customer club (value-oriented loyalty programme)?

A customer club can be defined as an at least communicative union of people or organizations, which is initiated and operated by an organization in order to contact these members directly on a regular basis and offer them a benefit package with a high perceived value, with the goal of activating them and increasing their loyalty by creating an emotional relationship.

The most important special characteristics of customer clubs and other value-oriented loyalty programmes are as follows:

• They are initiated, planned and managed by an organization, and not by the customers themselves.
• They offer real and perceived value to their members by optimizing the combination of financial (hard) and non-financial (soft) benefits.
• They provide opportunities for members and the sponsoring company to talk to each other.
• They can collect data which will help other departments of the sponsoring company improve their performance.
• They aim to activate customers by encouraging them to buy or recommend a product, communicate with the loyalty programme and so on.

There are several steps involved in establishing an effective customer loyalty programme. First, put together an interdisciplinary project team that is fully devoted to developing a powerful programme. Creating a customer loyalty programme should involve the whole organization, and by drawing team members from different departments, you avoid a onesided approach. And before starting any work on a programme, answer one question honestly: ‘Are our products (or services) worth it?’ If your products are inferior or out of date, any investment in a customer loyalty programme will be a waste of time and money.

Loyalty programme goals

At the outset, the goals for the loyalty programme must be clearly defined. Only if they are will you be able to measure the loyalty programme’s success. The core goal of a customer loyalty programme is, of course, to increase profit, revenue and market share. Other important goals include customer retention, winning new customers, setting up a strong customer database, supporting other departments with information or access to information, and creating communication opportunities between the organization and its customers. A variety of subsidiary goals can be added, such as improving public relations and customer support, increasing usage and achieving more frequent visits to a particular retail outlet. Success measurement has to be considered even at this early stage, defining what scales need to be used to measure success in terms of the defined goals, what levels signify success and failure, and so on.

It is important to be aware that customer loyalty programmes do not create quick results. They should instead be viewed as a powerful retention marketing tool for building long-term relationships.

Target groups

The primary target group for your customer loyalty programme should be your most important customers, those who constitute the major portion of your business, as securing these relationships is most vital for your future success. Smaller customers and potential customers should not be excluded from the loyalty programme, but the primary focus should be on developing a programme that fits the needs of the top customers. Other customers will still benefit from such a programme, but you will want to target them with concepts that take their particular needs into consideration.

The decision about whether to define your target groups narrowly or broadly depends largely on the goals of the loyalty programme. If you are aiming to set up a complete database of your customer base, then a wide definition of target groups is necessary; if the goal is to secure business from current key accounts, then focus is more appropriate. Another factor to be considered is how potential customers or competitors’ customers are to be approached. Sometimes, a loyalty programme can create a wave of new customers for the sponsoring company, but that will depend on the value and attractiveness of the benefit package.

Further segmentation (for example, concentrating on major customers in specific industries) only makes sense if the target groups are not sufficiently homogeneous to be approached through one programme. Customer loyalty programmes are very flexible and can cover several target groups, so it is possible to remain in touch with customers even if their habits change and they move from one target group or segment to another.

Type of loyalty programme

Customer loyalty programmes can be split into two groups: limited and open. The most suitable form depends on the loyalty programme’s goals, target groups and individual context.

Limited loyalty programmes require a membership fee together with a completed application form, and they try to channel membership towards the primary target groups. Certain criteria often have to be fulfilled in order to qualify for membership. This ensures a better focus on the primary target groups, and helps to keep out freeloaders.

Open loyalty programmes have no entry conditions, but as a result often include many members who are of no benefit to the company. They are ideal if extremely wide target groups have been defined, or if potential and competitors’ customers are also primary target groups. The lack of an entry condition will make membership more attractive and easier for a larger number of people.

Loyalty programmes can be further split into end-user loyalty programmes and business-to-business or distributor loyalty programmes, depending on their primary focus and target groups.

Loyalty programme benefits

The heart and soul of a customer loyalty programme are its benefits. The loyalty programme will only be successful if the right benefits are chosen. Benefits must have a high perceived value for members. To find the right combination of hard (financial) and soft (non-financial) benefits, it is necessary to take a value-oriented approach which consists of three steps.

In the first step, a list of potential benefits is brainstormed, focusing on the needs of the target groups. The only limit to developing interesting benefits is the imagination of the project team.

The second step is a small-scale pre-study which aims to filter out the most and the least interesting benefits from this list by asking a small sample to rate the different benefits. The interviewees are also asked to add new ideas of their own in this phase, in order to make sure that interesting areas are not left out and that the customer’s voice is heard.

Some of these new ideas, as well as the best-rated benefits, are taken into the third step, a large-scale survey. Here, a sample of at least 250 people is interviewed for a business-to-customer approach, although fewer interviews are sufficient for business-to-business. Using methods such as ranking scales, constant sum scales or the more sophisticated and very precise conjoint measurement, the value of the remaining benefits is measured.

The result of this three-step approach is that the long list of benefits obtained in step one is split into three groups: a small group of top value drivers, those benefits with a lower value to the customer, and those benefits with no value from the customer’s point of view. The final benefits should be selected from the first two groups after taking into consideration factors such as cost, feasibility and competenc...