Customer Loyalty Program1

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Customer loyalty programs

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Table of Contents

WHAT ARE CUSTOMER LOYALTY PROGRAMS PAGE 3

BUILDING CUSTOMER VALUE, SATISFACTION AND LOYALTY PAGE3

CUSTOMER DATA AND MODELS PAGE 5

ATTRACTING, RETAINING AND GROWING CUSTOMERS PAGE 6

CONCLUSIONS PAGE 9

BIBLIOGRAPHY PAGE 10

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WHAT ARE CUSTOMER LOYALTY PROGRAMS?

Loyalty programs are structured marketing efforts that reward, and therefore

encourage, loyal buying behavior behavior which is potentially of benefit to the firm.

Customer loyalty describes the tendency of a customer to choose one business or

product over another for a particular need. In the packaged goods industry, customers

may be described as being "brand loyal" because they tend to choose a certain brand of

soap more often than others. Note the use of the word "choose" though; customer loyalty

becomes evident when choices are made and actions taken by customers. Customers may

express high satisfaction levels with a company in a survey, but satisfaction does not

equal loyalty. Loyalty is demonstrated by the actions of the customer; customers can be

very satisfied and still not be loyal.

Customers are value-maximizers. They form an expectation of value and act on it.

Buyers will buy from the firm that they perceive to offer the highest customer-delivered value,

defined as the difference between total customer value and total customer cost.

A buyers satisfaction is a function of the products perceived performance and the

buyers expectations. Recognizing that high satisfaction leads to high customer loyalty, many

companies today are aiming for TCStotal customer satisfaction. For such companies,

customer satisfaction is both a goal and a marketing tool.

Companies are also becoming skilled in Customer Relationship Management

(CRM) that focuses on meeting the individual needs of valued customers. The skill

requires building a customer database and doing data mining to detect trends, segments,

and individual needs.

BUILDING CUSTOMER VALUE, SATISFACTION AND LOYALTY

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Managers who believe the customer is the companys only true profit center

consider the traditional organizational chart. Successful marketing companies invert the

chart.

Customer Perceived Value

A) Customers tend to be value-maximizers.

B) Customers estimate which offer will deliver the most perceived value and act on

it..

C)Customer perceived value (CPV) is the difference between the prospective customers

evaluation of all the benefits and all the costs of an offering and the perceived alternatives.

D) Total customer value is the perceived monetary value of the bundle of economic,

functional, and psychological benefits customers expect from a given market offering.

E) Total customer cost is the bundle of costs customers expect to incur in evaluating,

obtaining, using, and disposing of the given market offering, including monetary, time,

energy, and psychic costs.

F) Customer perceived value is thus based on the difference between what the

customer gets and what he or she gives for different possible choices.

Customer loyalty is the result of well-managed customer retention programs;

customers who are targeted by a retention program demonstrate higher loyalty to a

business. All customer retention programs rely on communicating with customers,

giving them encouragement to remain active and choosing to do business with a

company.

With the rise of digital technologies like the Internet, todays increasingly informed

consumers expect companies to do more than connect with them, more than satisfy them, and

even more than delight them.

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You want customers to do something, to take action. You want them to visit your

website, make a purchase, sign up for a newsletter. And once they do it for the first time,

you want them to continue doing business with you, especially since you probably paid

big money to get them to do business with you the first time. You dont want to pay big

money the second time. You want to create a "loyal" customer who engages in profitable

behavior.

CUSTOMER DATA AND MODELS

Customer data and models based on this data can tell you which customers are

most likely to respond and become loyal, no matter what kind of front-end marketing

program you are running or how you "wrap it up" and present it to the customer. The

data will tell you who to promote to, and how to save precious marketing dollars in the

process of creating customers who are loyal to you longer.

For example, let's say you look at your most loyal customers and find on average

they buy or visit at least once every 30 days. So you begin tracking these customers, and

discover 20% of them "skip" their 30 day activity. In addition, 90% of the 20% who skip

never come back. You are watching the erosion of customer loyalty right before your

eyes.

And it's too late to do anything about it, because they're already gone. You will

waste a tremendous amount of money trying to get them back. You have to develop a

way to identify high loyalty customers who are at risk, and take action before they leave

you.

This is accomplished by using the data customers create through their interactions

with you to build simple models or rules to follow. These models can be your early

warning system, and will alert you to situations like the "30 day skip" example above in

time for you to do something before the customer defects. Behavior models cause the

data to speak to you about the loyalty status of the customer before it's too late.

ATTRACTING, RETAINING AND GROWING CUSTOMERS

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A) Customers are becoming harder to please.

B) Companies seeking to expand profits and sales have to spend considerable time and

resources searching for new customers.

1) Suspects are people or organizations that might conceivably have an interest in

buying but many not have the means or real intention to buy.

2) Prospectscustomers with the motivation, ability, and opportunity to make a

purchase

3) Customer churnhigh customer defection

Two main ways to strengthen customer retention:

a. Erect high switching costs.

b. Deliver high customer satisfaction.

C) Most companies now recognize the importance of satisfying and retaining customers.

D) Satisfied customers constitute the companys customer relationship capital.

1) Acquiring new customers cost five times more than the costs involved in

satisfying and retaining current customers.

2) The average company loses 10 percent of its customers each year.

3) A 5 percent reduction in customer defection rate can increase profits by 25 percent

to 85 percent depending on the industry.

4) Customer profit rate tends to increase over the life of the retained customer..

E) The starting point is everyone who might conceivably buy the product or service

(suspects).

1) Prospects.

2) First-time customers.

3) Repeat customers.

4) Clientspeople whom the company treats very specially and knowledgeably.

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5) Members.

6) Advocatescustomers who enthusiastically recommend the company.

7) Partners.

F) Markets can be characterized by long-term buying dynamics and how easily

customers can enter and leave.

1) Permanent capture marketsonce a customer always a customer.

2) Simple retention marketscustomers lost after each period.

3) Customer migration marketscustomers can leave and come back.

Building Loyalty

)A Five different levels of investment in customer-relationship building:

)1 Basic marketing.

)2 Reactive marketing.

)3 Accountable marketing.

)4 Proactive marketing.

)5 Partnership marketing.

Reducing Customer Defection

)A Five main steps a company can take to reduce the defection rate:

)1 The company must define and measure its retention rate.

)2 The company must distinguish the cause of customer attrition and identify those

that can be managed better.

)3 The company needs to estimate how much profit it loses when it loses customers.

)4 The company needs to figure out how much it would cost to reduce the defection

rate.

)5 Finally, listening to customers.

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3) Turn the product into a long-term service.

Customer relationship management (CRM) is the process of managing detailed

information about individual customers and carefully managing all customer touch points

to maximize customer loyalty.

Today, companies face their toughest competition ever. The cornerstone of a

well-conceived marketing orientation is strong customer relationships. Marketers must

connect with customers- informing, engaging and energizing them in the process.

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BIBLIOGRAPHY

http://www.greatbrook.com/customer_loyalty.htm ;

http://www.jimnovo.com/Customer-Loyalty-more.htm

http://en.wikipedia.org/wiki/Loyalty_program

Marketing_Management_12th_edition__12e__by_Kotler_and_Keller

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