Loyalty marketing and price cannibalization



VIP members customers marketing promotions


I was reading an article that I thought was very interesting here and I think retailers will find it an interesting read even if like me they have some doubts about some of the points.

Here are some points I agree with

) Customers don't want or need loyalty Customers are not loyal.

) Why should customers want to be loyal? Why would people limit their range and options voluntarily? Unlike your pet, they have all the power anyway, so why should they give that up? The average customer can extract as much value from a retailer as a loyal customer, so there is not much benefit in being loyal anyway.

) Loyal customers are demanding customers.

) There is a cost in satisfying the demands of an existing customer. Give a loyal customer 10% discount, and after overheads, you got nothing out of the customer. Few of us can afford even 5% discount.

Here are four observations that I have noticed with loyalty marketing

) Since the economic incentive of most rewards programs is small, few customers are going to go well out of their way to take advantage of a rewards program. The main benefit is the information that the retailer gets on their customers. The information benefits are estimated at 1% of sales so almost all rewards programs work on 1% of sales. This is the retail benchmark. It is not as many think the increase in sales as such.

Most importantly they want their customers' email address to market too. If I send out a thousand emails every two weeks and I get a 1% response rate, I have 10 sales every two weeks.  If my basket size is $50, over the year, my newsletters have generated $13,000 extra income. 

) Most loyalty programs in my experience end out being taken up by people that were going to buy anyway at full price so offering people in the shop already discounts is very dubious. What you want is a loyalty program that will bring them to your shop.

) Many successful retailers like ALDI do not have a loyalty program. Conversely, Coles and Woolworths are more successful and they do have such programs.

) Very few customers that come or leave you do so because they are dissatisfied with the product or service they are receiving. Give them bad service or faulty goods, yes they will leave you but that is another story.

Hope these observations help at the very least give you food for thought.






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