01 Mar 2004  What Do YOU Think?

Are Customer Loyalty Initiatives Worth the Investment?

What are the loyalty rules? Have managers been led too far afield with customer loyalty management programs?

 

Summing Up

This month's column presented two views of the importance of customer loyalty management, one challenging its feasibility and long-term impact (Michael Treacy, Double Digit Growth) and one concluding that it is one of the most important drivers of profitability and growth (Frederick Reichheld, The Loyalty Effect).

Instead of joining a debate, many respondents decried the misuse of the term "customer loyalty management" and superficial attempts to manage the phenomenon. In the view of Theresa Quintanilla, "It's a pity that 'loyalty' has become synonymous with gimmicks to let customers acquire points or miles or any loot unconnected to the product they are using . . . It's about customers and suppliers caring for each other's success." As Alan de Winter put it, "A consistently well-delivered product or service at good value goes much farther in retaining customers than programs that focus on retaining customers but add cost to the product or service."

Others tended to regard Treacy's and Reichheld's views as complementary. "I don't see a conflict," said Jack Flanagan. "The confusion or conflict occurs when we assume that a customer loyalty management initiative, in and of itself, will overcome basic shortfalls in product/service delivering in a competitive situation." Robin Clark pointed out that: "Neither view is completely right or wrong. I think that it would be wrong to base all your efforts on trying to keep customers loyal . . . However, a customer base high in 'loyals' is a good indicator that you're doing something right." In Scott Bailey's opinion, "It seems to me that the positions . . . are really not at odds with one another . . . Treacy is suggesting that firms focus not on the program, but on whether or not the program is providing significant value to the segment for which it is intended."

A third line of thought concerned the impact of rising customer expectations on loyalty initiatives. As Wendy Jameson said, "Loyalty initiatives have become the baseline standard. To compete with truly 'sticky' customer service, you're going to need to get creative . . ." Jim Coyle suggests that this may involve putting in place effective service recovery programs that "fix problems when they are brought forth."

Have we witnessed just the first phase of customer loyalty management initiatives? What directions should customer loyalty management take in the future? Is it really worth the money invested in it? What do you think?

Original Article

How many times have you heard that it costs several times more to attract a new customer than keep an existing one? Or that satisfied, loyal customers become more and more profitable over their lifetime as they purchase new products, updates on old ones, supplies, and services, all the while recruiting others to do the same? In fact, that customer loyalty is the single most important driver of growth and profitability? When several of us first began researching these relationships, findings such as these were news. Today we take them for granted.

Fred Reichheld, among others, has fashioned a career as a consultant around his work on loyalty, which then led to a best-selling book, The Loyalty Effect. He concludes that even though many customer loyalty initiatives are poorly thought out or implemented: 1) "Some customers are inherently predictable and loyal, no matter what company they're doing business with. They simply prefer stable, long-term relationships," and 2) "Consistently high [customer] retention can create a tremendous competitive advantage, boost employee morale, produce unexpected bonuses in productivity and growth, even reduce the cost of capital."

Now comes Michael Treacy, writing in his book, Double-Digit Growth, that we should "forget loyalty... The quest for loyal customers is largely wasted effort ... Companies that have committed to complicated schemes for customer loyalty management (such as Lexus, Staples, and American Airlines) don't have much to show for it... Consultants peddling customer lifetime value (LTV) analysis and loyalty segmentation schemes haven't fared much better." Instead, Treacy advises us to keep our eye on the goal of delivering product or service value as a means to retain our customer base rather than emphasizing loyalty schemes that utilize special incentives for existing customers to purchase again. To do this, we should make our services "sticky," tailor offerings to the needs of desired customers, detect and preempt customer defections through special deals, and "bond" with customers through an understanding of their needs for products, services, and brand affiliations.

Who or what should we believe? Have we, as managers, been led down the garden path of the efficacy of customer loyalty management efforts? Would we, in fact, be better off concentrating our efforts on other initiatives? Is Treacy exaggerating for the sake of impact when he concludes that we should forget loyalty because the customer who "never" switches products or brands is impossible to find? In fact, does he contradict himself when he talks, in the same book, about ways to detect and preempt customer defections with deals? What do your experiences tell you? What do you think?

To learn more:

Michael Treacy, Double-Digit Growth: How Great Companies Achieve It—No Matter What (New York: Penguin Portfolio, 2003).

Frederick F. Reichheld, The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value (Boston: HBS Press, 1996) and Loyalty Rules!: How Today's Leaders Build Lasting Relationships (Boston: HBS Press, 2001).

Comments

    • Anonymous

    A reasonable effort matters. Loyalty is a two-way street, and if traffic stops in one direction, it stops in the other, as well.

     
     
     
    • Jim Holcepl
    • Eastern Regional Sales Manager, Elsevier Science and Technical Books

    From a personal standpoint, I view airlines' loyalty programs differently from hotel chain's. The flying experience today has made me less inclined to want to cash in my rewards to put myself through an experience that I am required to participate in due to work-related travel. I would rather drive than get on another airplane! At one time I was very loyal to one particular airline; now it really does not matter. Just get me there safely and as on time as possible at the lowest fare. Not one airline stands above the others nowadays.

    The hotel rewards are different. I favor a couple of chains as long as they price themselves well and within acceptable competitive rates. However, one chain just outdid itself in my mind. They sent me a letter informing me that I have been granted their highest member level for life. Not necessarily due to a high level of travel—I never could book that many nights per year—but because I have been loyal to them for twenty years. That is smart marketing! Where do you think I will try to stay on every trip I can from here on out?

     
     
     
    • Pamela M.
    • Accountant

    I came to this country for work reasons from Chile five years ago. Chile is a small country but very well organized, with a well-managed economy. Now I live in New Jersey and nothing surprises me more than the loyalty of the American customer, even when some stores—supermarkets through department stores—are ugly, dark, and even dirty. American customers don't ask for much; they tolerate negligence from many companies and don't even complain about it. I still can't believe it. You should see or read about other countries and you'll be surprised at customer satisfaction.

     
     
     
    • Neeta Tolani
    • Consultant-Writer, CnK Management

    Often the same product or service can be offered to numerous segments of the market, with each segment having its own reasons for using the product/service. In this kind of environment, it becomes important for companies to take a closer look at loyalty initiatives. The focus revolves around identifying segments that would best respond to the initiatives and whether the benefits from one segment can be passed on to the next. If the cascading effect does come into force, then perhaps the investment into such a program is justified.

     
     
     
    • Vukile Gwele
    • Business Design Consultant, Absa Bank, South Africa

    During the post-industrial era we have witnessed a swing of the pendulum, with more products and services coming into the markets much faster than anyone would have imagined. This has presented customers (across the value chain) with a choice of what and what not to buy. It became a question of what to leave out and whom to leave out, with a remarkable shift in power.

    Like any kind of investment, customer loyalty (return) is worth investing in, only if it can adequately compensate for the customer experience (risk) the company is exposed to. The challenge with customer experience is that it has shifted from being defined only by such tangibles as quality and price to mainly being defined by intangibles such as values, culture, attitude, etc. So to deflect the impact of negative customer experience or to influence and induce its positives, companies should invest at intangible and subtle levels by defining customer-centric processes and products with embedded values and culture identities.

    In their various industries, companies are offering more of the same products at almost the same price through similar distribution channels, which erodes any competitive advantage. Even new inventions take a very short time before being copied and duplicated.

    When properly implemented—with supportive capabilities, of course—customer-centrism is more than likely to bring back the competitive edge (customer loyalty) long-lost with differentiation by quality, price, and technology.

     
     
     
    • Kesh Prasad
    • (HBS MBA '69), Differential Web Solutions, Inc.

    I believe that strongly worded generalizations on both sides of the fence are misleading. Opinions can dominate the empirical evidence. I have data on hotel brands to show that high satisfaction leads to repurchase intent, leading to willingness to recommend the brand to others, translating into better financial results in the hotel industry again and again. I am very skeptical about the validity of across-the-board generalizations where research data is referred to casually and in passing.

    I'd like to debate this issue and would like to learn more about empirical evidence in different industries.

     
     
     
    • Vincent Puterbaugh
    • Realtor, Coldwell Banker Associates Realty

    Whereas Frederick F. Reichheld and others have done a reasonably thorough job of evaluating business models with respect to customer retention versus costs incurred, he overlooks the impact that better value-driven business models bring to the marketplace. In a closed market (i.e., prescription medicines still under patents), customer retention is easier to maintain because of the limited number of options available to the consumer. In an open market environment (automobiles, office supplies, and airline travel), consumers are offered more choices and, obviously, price will be one of the variables considered.

    Corporations and managers are going to have to come to grips with the reality that consumers are still driven by value and those companies that cannot compete on that basis at their current pricing strategies are not going to retain their clients. If these same companies actually deliver superior value, whether through price or service, they stand a decent chance of retaining their clients—at least until their competitors find a better way of communicating their value proposition to the consumer.

     
     
     
    • Doug Hooton
    • SVP, Walker Information

    A key point in answering your question is how one defines customer loyalty management (CLM). The article talks about CLM as being about incentives and other affinity approaches to drive behavior. We define CLM as understanding the drivers of loyalty and aligning your strategies, processes and metrics to understand and improve your customer relationships and your business results. Michael Treacy is defining CLM as affinity and Fred Reichheld is talking about business intelligence. Comparing their arguments is an apples and oranges comparison.

     
     
     
    • Anonymous

    Customer loyalty can be measured for the most part by what is it costing the customer. With comparable services and costs, I am more comfortable with a service that I know and understand as well as the trustworthy contacts that I have made. If you price these services beyond what I am willing to pay or if a significantly lower-costing competitor comes along, I can only say, "It's been fun, ta-ta."

     
     
     
    • Malek Ali (HBS MBA '95)
    • Head- Mobile Content, Maxis Communications

    If what a company means by a customer loyalty program means cheesy, me-too deals, points programs, or discounts, then they might as well bin it. The fundamentals must be there: a good product backed by a great service culture. Without these basics, give me all the customer loyalty programs you want, but I will still choose the competitors'.

    But note the proviso of "great service culture." If a company always strives to put itself in the shoes of its customers, then it will always retain them, with or without that dastardly rewards program. I think the failure of loyalty programs is that the programs are reduced to a tactical marketing piece without the deeper conviction of having the customer's interests at heart.

    Call me conciliatory, but I don't think there is a much ground of difference between Michael Treacy and Frederick F. Reichheld. To get customer loyalty you need a great product (Treacy) backed by great service (Reichheld).

     
     
     
    • John Eager
    • CEO, Multibuild Australia

    Add-on schemes to reward loyalty are not as effective as simply talking to your customers regularly and listening to what they tell you. We have a ninety-day contact scheme where we contact every client by phone, or visit every three months or sooner. Eighty-five percent of our sales are repeat customers or referrals from existing customers. We do not use so-called reward programs.

     
     
     
    • Ashish Dimri

    A customer who is not scouting around for an alternative or comparing a product with that of your competitor does no service to the seller, since an important link in the competition system would be missing from such an attitude on the customer's part.

     
     
     
    • Sharika Kaul

    I think that organizations put more effort in building customer loyalty than in offering a product or service of true value.

    It's funny how a company will offer you freebies worth X+1 amount while the original product is for X amount. There has to be some structural change in thought that prompts a change in the buying process. And unless the companies address this, no amount of "freebies" and data analysis is going to make a customer stay with one organization.

    The goal of the organization is not to build loyalty, though of course it is a byproduct, but to produce the best service or product that it was born to do. Like a good movie: More than the merchandise, what tempts me is the content and if it is good, I will watch the movie at least one more time in the theater and probably buy the DVD and also the music CD, if any, and on top of that will recommend the movie to ten other people. So that's loyalty for you: to the product.

    So the only way to keep the customer in line is to evolve.

     
     
     
    • Vikram Chachra
    • Marketing Manager, Metric Consultancy Limited, India

    Loyalty initiatives and incentives make sense for an organization as long as they add to the product or service (value proposition) or buying experience. If these lead to potentially positive associations with the said product/ service/company, then we can say that the loyalty program has been well thought out.

     
     
     
    • Anshu Vats
    • Business Solutions Executive, EDS

    Let's take three cases: autos, airlines, and credit card companies. Each in their target market has introduced a sense of identity, affiliation, preferential treatment, and most importantly a sense of fair return for customer loyalty. This return has to be threefold: a) making it easier to do business over a period of time due to increase familiarity; b) decreased cost of business as optimal, mutually agreed-upon balance of price/return is established; c) an emotional tie that provides social benefits of some value to the customer.

    Where the customer loyalty as a paradigm is abused, it dilutes the relationship down to price ratio.

    On the other hand, "customer churn" is not essentially a bad thing. Having unprofitable customers housed in your book is bad enough; enshrining them into valued customer status is disastrous.

    Customer loyalty is hard earned. Make the investment wisely and the rewards could be plentiful.

     
     
     
    • Theresa Quintanilla
    • Marketing Consultant, QViews

    It's a pity that loyalty has become synonymous with gimmicks to let customers acquire points or miles or any loot unconnected to the product they are using.

    It started out with airline miles, and it made sense at first—the airlines wanted to bond with those who flew the most. Now I can get airline miles when I buy groceries.

    Let's remember what loyalty means. I'm loyal to the little drycleaner down the street even though I don't get any points and they aren't perfect. But they look me in the eye when I want something fixed, and they bend over backwards to make me happy. That's what real loyalty means— they are loyal to me and I to them. I don't get too excited if they make a mistake—I give them some slack.

    We don't need a new word like "sticky" to describe this relationship. We just need to be more disciplined about marketing. It's about customers and suppliers caring for each other's success.

     
     
     
    • Jack Flanagan
    • EVP, business systems, Giant Eagle

    I don't see a conflict. Customer loyalty is earned by the strength of the basic product/service offering itself rather than by a "customer loyalty management initiative" per se.

    A mediocre or inconsistent offering can almost never be overcome by such a loyalty management initiative if customers have reasonable (and, sometimes, even seemingly unreasonable) alternatives. Conversely, a stellar offering can be enhanced when there is timely and focused effort devoted to understanding what it will take to gain more share of wallet from existing customers.

    The confusion or conflict occurs when we assume that a customer loyalty management initiative, in and of itself, will overcome basic shortfalls in product/service delivery in a competitive situation.

     
     
     
    • Wendy Jameson
    • President, Potentiate

    Loyalty initiatives are getting to be like coupons. They force companies who initiate them to compete on price. As long as your "gimme" is the best one available at the time the customer is interested in buying, the customer will go with your company. But if customers can get a better deal elsewhere, with a different company's loyalty initiative, they'll go with it.

    Let's face it; most of us participate in multiple loyalty programs so we can pick and choose which deal to go with when we need it. For example, I have mileage cards for Southwest, United and America West. Which one has the best deal for me for an upcoming trip to Mexico? There's my loyalty.

    Loyalty initiatives have become the baseline standard. To compete with truly "sticky" customer service, you're going to need to get creative and go beyond what's standard. Hate to say it, but that bar gets raised a little every day, so businesses are just going to have to try harder.

     
     
     
    • Alan deWinter
    • President, Prestige Homes

    A consistently well-delivered product or service at good value goes much farther in retaining customers than programs that focus on retaining customers but add cost to the product or service.

     
     
     
    • Lee H. Igel
    • ExerPsych Lifestyle Management

    How about Company X rolling out a solid product? Perhaps I'm buying the wrong products, but the peddlers of products in general seem to talk our ears off about customer loyalty. This is usually a veil for shoddy products and, more importantly, shoddy attitudes behind the products. The thing is: Customer loyalty programs seem intended to make customers feel as though they are doing the company a service simply through patronage, that the company is working to make life better for the customer. Why is it, then, that most customer service "specialists" make the consumer do all the work? Treat me kindly and professionally, and I'll come back for more.

     
     
     
    • Sidney Gendron
    • Customer Service Supervisor, Near North Supply, Inc.

    Over the past years I have noticed a decline in customer loyalty. One would want to believe that reliability and overall professionalism would win over pricing! Apparently no longer. Time and time again I hear we did not get the sale due to pricing. And this is from well-seasoned salespeople.

     
     
     
    • Adelle Popolo

    There are definitely two categories of customers:

    A) The shopper who is always looking for the absolute, rock bottom price.

    B) The customer who prefers to seek the best business proposition and then tends to stick with that vendor until the product, cost, service, or total proposition becomes unsatisfactory.

    Type A is not worth chasing. Type B is worth pursuing and cultivating. But it is important to understand what constitutes a profitable type B customer and what behaviors engage this customer.

    For example, some retail establishments will give away the store to keep an unprofitable customer happy. This is the "the customer is always right" rule. And while it avoids conflict, it does little to improve the loyalty of profitable customers and everything to improve loyalty of difficult, unprofitable customers.

    Large industrial or commercial customers also typically expect deep discounts, dedicated support, and differentiated products. If this type of customer is not an alliance customer who provides some level of sole source specification for these added vendor services, then the decision on how to position with this customer must be based on the customer's volume impact on factory loading, break even, unit cost, etc.

    Understanding customer profitability and segmenting customers to develop business propositions to improve the retention and loyalty of the top tier of profitable customers is a worthy investment. Unfortunately, most companies do not have the capabilities to analyze customer profitability.

     
     
     
    • Marc Schoenen
    • current MBA student, Harvard Business School

    I grew up in a family supermarket that was successful for over seventy years. Customer loyalty was paramount to our business model, and ensured our continued success in the face of increasing competition in a well-known razor-thin margin industry.

    Customer acquisition costs in the supermarket industry are extremely high. First, it eats into the already thin margins inherent in the industry. Second, adverse selection is often the result: You obtain many new unprofitable customers who only come into the supermarket for the loss-leaders.

    I can think of hundreds of examples over the years where seemingly annoying and costly services helped retain the higher-margin customers that helped maintain our success over the long term. Whether it was the owners hand-delivering the forgotten ham on a late Sunday night, paying for damage to a customer's car in the parking lot, or accepting refund meats that we knew were mishandled by the customer—as long as these were infrequent occurrences, these were the very customers that were the most loyal and willing to pay price premiums for our services.

    Finally, loyal customers are often your best advertisers. Word of mouth and references are much more important than the weekly circular promoting grapes for 79 cents a pound.

    Perhaps our results were anomalous because we were in small-town Pennsylvania and not in a large urban environment. Nonetheless, customer loyalty served us well over the decades.

     
     
     
    • Anonymous

    Today's customer is well educated and Internet-savvy. He or she will research before buying. We need to know our customers as well as they know us and make it clear to them we care about their business.

     
     
     
    • Robin Clark
    • Editor, The Wise Marketer

    Neither view is completely right or wrong. I think that it would be wrong to base all your efforts on trying to keep customers loyal, particularly if those efforts were simply offering them incentives to stay. However, a customer base high in "loyals" is a good indicator that you're doing something right. Doing the things that make customers loyal is a good way to run a business— and their loyalty is a measure of how well you're doing.

    The value of loyal customers is plain to anyone who takes a good, hard, look. Look at some of the real-life figures in Gary Hawkins' book, Customer Intelligence. His best customers would qualify as loyal customers by most definitions and his charts show how they keep a business going.

    I must make it clear that I haven't yet read Double-Digit Growth; my comments are based only on Professor Heskett's comment.

     
     
     
    • Scott Bailey
    • Executive Vice President, Targetbase

    It seems to me that the positions, as Jim describes them, are really not at odds with one another. Most firms that offer "complicated schemes for customer loyalty management" do so in hopes of creating a value proposition that will be attractive to specific segments of customers. Thus, while the schemes may not be effective, it does not mean that the objective behind them is not exactly what Treacy is recommending. It would seem, then, that Treacy is suggesting that firms focus not on the program, but on whether or not the program is providing significant value to the segment for which it is targeted.

     
     
     
    • Bob Batten
    • Management Consultant—Privacy

    Customer retention and loyalty has been a management issue ever the word "competition" was first used in our language. Companies have been wrestling with this issue for a long time. Today the latest buzz is customer relationship management and the hundreds of thousands of dollars to implement the software. Will it work? How will it fit with the new privacy legislation? How can a company assure trustworthiness in the eyes of the consumer without an independent audit? How does it compare to excellent products consistently offered through excellent service? Only the future can tell us.

     
     
     
    • Jim Coyle
    • President, Coyle Hospitality Group

    For hotels, our research has shown that loyalty programs are not a primary factor in the purchase decision. People love to travel, find great deals, and tell their friends. Stories about great travel deals have replaced stories of great stock picks at the backyard BBQ.

    Hotels are best off trying to insert their unique proposition into that word-of-mouth marketplace so that new customers associate a quality message with a great travel deal.

    How does the hotel insert that message? We have polled over 4,000 travelers this year about their best experience at a hotel, and the answer is quite simple: Provide excellent service recovery (fix problems when they are brought forth) and you will have that guest telling everyone they know both parts of their travel story. They will talk of their prowess at getting the deal, and bring great recovery experiences along for the ride. Getting great service becomes inseparable from the "great deal" story. Moreover, great recovery doesn't know the room cost. Travelers extol discount and luxury hotels with nearly equal vigor when it comes to recovery.

    Hotels will do well to send the traveler home to friends and family with a great story about how they reacted when the traveler needed them.

     
     
     
    • M. S. Ashok
    • General Manager, Reliance Industries Limited

    Another major problem that companies face is that investment in loyalty programs become individual-specific, with a strong internal sponsor as the one who makes the company invest. If he or she departs before a critical minimum period, the programs languish. Loyalty programs call for continuous investment because they are also a brand. No customer would feel special about a brand that the company itself is not very possessive about.

     
     
     
    • Peter Mackey
    • Director, Market Sciences, BrightMark

    Customer loyalty is the best path to long-term growth and profitability, but the way you earn a customer's loyalty is by providing tailored offerings that directly satisfy the needs of the customers you are seeking to retain, not by attempting to coerce them through loyalty programs and incentives.

     
     
     
    • Anonymous

    Finding comfort and security in the belief that you have a loyal customer can be a disaster waiting to happen. Unless you are supplying a service or product for a customer in a market where you have no major competitors, my experience has been that the only loyalty comes from delivering on commitments at a market price.

    Large customer loyalty, which can breed products and processes specific to that customer, can cause an organization to become misaligned with the rest of the market. Organizations would be less likely to change and evolve, which can allow a competitor to gain an advantage and attract its customer.

    You'll soon find your organization agreeing to a profit-compromised price to keep your customer happy, or investing resources and playing catch-up to prove to your customer that you are providing best in class products, processes, and service.

     
     
     
    • Suman Das

    Customer loyalty is largely dependent on the product or service in question.

    In the case of automobiles, it is the entire package of the car, how it performs, its reliability, the quality/price of after-sales service, and the reputation of the manufacturer in the market segment that will determine whether the customer will come back again and again. Gimmicks like branded credits cards or magazines do not guarantee repeat business.

    On the other hand, the airline industry (particularly economy travel) is now a commodity business driven mostly by price and destinations offered. Except for the actual flying, very little else is within the control of the airline itself. Customers have to encounter the same tedious security checks, the check-in queues; long traffic jams to the airport, etc. Customer loyalty programs have little value.

    In banking, customer business is mostly driven by inertia. Customers do not want to move their financial business often or seek out the best deal. Although there is fierce competition in this sector, customer loyalty programs make good sense here.

    In short, customer loyalty programs work as long as the customers value the goods/service vis-à-vis the price they have to pay. Get this balance wrong and the customer will head straight towards the competitor.

     
     
     
    • Pam Van Orden
    • Chief Creative Officer, White Canvas

    Loyalty is not dead, but it is harder to achieve. Customers are loyal to companies that make an emotional connection with them, align with their values, listen to their needs, and respond with meaningful products and service. Loyalty comes from a great brand experience, delivered at every point of contact.

    The flip side is that most companies do not deliver a great experience. They don't give their customers a reason to be loyal. They offer commodity products or services promoted with fuzzy communications and supported with inferior customer service. Since the majority of companies fall into this latter group, it's easy to draw the conclusion that loyalty is passé.

    In my experience, the real story is that an era of short-term thinking in business has brought us a plethora of organizations that are unwilling, or don't know how, to do the work that loyalty requires. Maybe it's just easier to make a case that it's not important any more.

     
     
     
    • Ron Kurtz
    • Principal, The American Affluence Research Center

    Michael Treacy is correct when he says the first priority for achieving customer loyalty must be the delivery of product or service value. However, when dealing with what is essentially a commodity product (an airline, for example) or a product/brand with a slight competitive disadvantage, then loyalty programs that utilize special incentives can be very effective. Treacy seems to overlook the fact that the American Airlines loyalty program is a good profit center for them and a compelling point of differentiation at times when their schedules and fares are essentially the same as their competitors. Having acquired six Lexus cars over the past nine years, I was surprised to learn they have a loyalty program. Perhaps that illustrates one reason Treacy feels their program is ineffective.

     
     
     
    • Ron Murray
    • CEO/Owner, The Vine Company & Daily Bread Company

    In our experience, customer loyalty is formed and is maintained by consistently providing a good product and excellent customer service. And service, we believe, is more important than product. We believe frequent customer discounts and incentives only diminish profits and are not required to gain customer loyalty. Plus, once started, it is exceedingly difficult to discontinue a loyalty program.

     
     
     
    • Behram Hansotia
    • President & CEO, InfoWorks

    The two approaches for increasing customer equity are not mutually exclusive. The more generic and non-differentiated your products and services are, the greater the need for a loyalty program. Likewise, the more powerful your value proposition and the more differentiated your products and services, the less you need a loyalty program.

    I would submit that companies need to continuously focus on their processes and products to ensure that they remain highly competitive. They also need to create memorable customer experiences and products that result in high utilities for their targeted market. If a company can continuously anticipate customers' needs and exceed their expectations, then a loyalty program is probably redundant and will not contribute much to increasing customer value.

     
     
     
    • Devashish Pujari
    • Assistant Professor, McMaster University, Canada

    In my view, one of the benefits of loyalty schemes is gathering up-to-date information about customers' purchasing and consumption behavior and keeping an eye on the customer's brand portfolio. The measures Michael Treacy has suggested, such as tailoring offerings to the needs of desired customers, detecting and preempting customer defections through special deals, and "bonding" with customers through an understanding of their needs for products, services, and brand affiliations can be achieved through an effective loyalty scheme. A few years ago in the U.K., Tesco outsmarted Sainsbury's (number one at the time in the country) by launching a loyalty card. This enabled them to identify a group of customers who were shopping at both Tesco and Sainsbury's. By encouraging them to shop more at Tesco (through various deals and promotion), the supermarket could increase the share of these customers.