Tuesday, May 20, 2014
One lesson drummed into marketing students is the importance of developing brand-name loyalty programs to retain customers. Once you have done enough to win over their loyalty, your brand can survive primarily on repeat business.
A 2013 survey by Hotels.com® found that this worked particularly well in Canada. 86 per cent of Canadians participate in loyalty programs. Of these, 67 per cent join such programs because of the perks they provide.
Consumers complain endlessly about the affordability of both necessities and luxuries. Few things bother us as much as the rising prices of our favourite products and services. So it is hardly surprising that such perks-based loyalty programs work well. In fact, 75 per cent of the participants in loyalty programs told the pollsters that they liked free products or services in exchange for their repeat business, and 63 per cent said that they would not be willing to pay higher prices for products/services in exchange for brand loyalty program benefits. In other words, if brands give us things, we will give them our repeat business. If we must pay them to qualify for those things, we are not interested.
Many cynics would ask whether we are not paying more for the goods because such loyalty programs exist. After all, if companies give some things away for free, they can only survive by charging more for others. But this is the crux of loyalty programs. It costs at least five times more to attract a new customer than to keep an existing one. So if companies had not spent money on items which they give away to members in their loyalty programs, they would have had to spend even larger amounts on other marketing programs to win over new customers.
One interesting question is whether this can be called brand loyalty at all. Canadians in the survey did not hesitate to admit that they sign up because of the perks. This implies that the vast majority of supposed loyal customers would run for the exits even if the product/service remains as good as ever. Presumably, they would be happy to join competitors' loyalty programs for perks too.
So while companies can use perks to build a temporary customer base, genuinely loyal customers who stick around and recommend a brand to others can probably be attracted only through good customer service and unique or vastly superior products.