Do loyalty programs really work?
By ROBYN ANNS

Buying loyalty

Australian consumers have taken to retail loyalty schemes with enthusiasm. The Australian Centre for Retail Studies at Monash University is investigating how loyalty scheme operators can entice and then retain customers in such a competitive environment. ROBYN ANNS reports.

The wallets of Australian shoppers are bulging with loyalty cards that promise an array of consumer rewards ranging from discount cosmetics and travel goods to free flights and family passes to theme parks.

Dr Kerrie Bridson says retailers need to find out if their loyalty programs have worked.

The phenomenon of loyalty schemes and incentive programs has captured the interest of the Australian Centre for Retail Studies (ACRS) in Monash's Faculty of Business and Economics, which is now investigating the effectiveness of such programs.

Research project manager Dr Kerrie Bridson says structured loyalty programs have been popular for at least 10 years, but now retailers need to find out whether the programs work and whether they have recouped the investment they have made in them over that time.

"We know that loyalty programs offer a huge range of rewards and incentives," she says. "But how much do we know about how and why these schemes work and whether they are financially viable?"

Dr Bridson says the ACRS research specifically aims to acquire new knowledge of loyalty marketing and improve the outcome for loyalty program operators.

Researchers will be concentrating on two aspects of loyalty cards: how to classify loyalty card members, and customer redemption issues and how they drive customer loyalty.

The general retail wisdom, Dr Bridson says, is that customers stay with a product or a retailer through loyalty, and their commitment will remain while they feel they are being rewarded.

"It is commonly accepted that it costs retailers 10 times as much to attract new customers than retain existing ones," she says. "In pursuit of customer retention, concepts such as customer relationship management (CRM) have evolved to give the retailer a competitive edge."

Results of the centre's annual retail meter survey of Australia's top 400 retailers suggest there is growing interest in CRM programs, with 63 per cent of Australian retailers currently operating a formal program to further develop customer relationships. The most commonly used tool under the CRM umbrella is the retail loyalty program, usually incorporating a loyalty card.

While there is no official record of the number of loyalty schemes in Australia at present, Dr Bridson says there is a perception that such programs may be nearing saturation point.

"The market is becoming swamped with loyalty schemes, although this does not necessarily spell doom for the idea," she says. "The challenge for operators is to differentiate themselves in a crowded marketplace and design programs which add value to the consumer shopping experience."

A recent ACRS report into con-temporary marketing issues has already revealed several ways to make loyalty marketing programs more effective. These include:

• making redemption of rewards easy;
• using information about customers to improve service - it is futile to have a database full of information about customers if it is not used to serve them better;
• matching loyalty currency to the market - there is no point offering discounted pantyhose as an incentive when 60 per cent of the customers are men;
• achieving balance - consumers are not only motivated by tangible rewards; being valued as a customer is often just as important;
• standing out from the crowd - companies need to differentiate their offers from those of their competitors; and
• treating the loyalty program as a long-term relationship-building strategy rather than a short-term promotion tool to drive sales or a build a database.

Dr Bridson says the report shows that the key for companies rethinking their CRM strategies is to remain committed for the long term and evaluate the costs associated with any program over its lifetime.

She says the Priceline chain, for example, believes its loyalty program has helped drive its performance because it delivers real value to customers.

In 2001, the chain launched its ClubCard program in Victoria, where it was so successful that the scheme went national the following year. Company statistics reveal the program has signed one million shoppers to the scheme and that 35 per cent of purchases in its stores are now made in conjunction with the loyalty card.

The organisation believes its program is used widely because it offers rewards that are achievable and that match its customers' needs. Rewards include discounts and special offers on store products, and consumers do not have to spend too much for too long before they benefit.

Dr Bridson says customers need to feel rewards are achievable, so narrowing the para-meters of a reward scheme can be a turn-off.

"Operators need to be cautious when redesigning programs while they are in operation, or redesigning program features such as the value of points, because customers can feel cheated," she says. "The redesign of the Fly Buys program, for example, created consumer confusion and a degree of distrust - in effect, it has been detrimental to the objective of creating a loyal customer base."

"The key to keeping program members loyal is to focus on adding value to their relationship with an organisation. If retailers remain committed to their customers through their loyalty programs, customers are more likely to remain loyal to them."

Action  

For more information on the Australian Centre for Retail Studies, visit www.buseco.monash.edu.au/Centres/ACRS/.

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