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Loyalty 2001?

Star Wars meets the Internet

Will loyalty schemes end up drifting off into space, like the unfortunate astronaut at the end of the 2001 Space Odyssey? Will they be perceived by 'New Millennium' Consumers and Marketers as a throwback to the recession of the 1990s and a crude attempt to 'buy' customer repeat purchase behaviour? Several recent research findings are indicating limited support for the role of loyalty card schemes in creating real customer loyalty. Other reports are also highlighting a trend to lower brand loyalty generally by all consumers.

Is the future a 'Wal-Mart style' model market with scale and buying leverage driving down price and only the few retailers left standing after the shoot-out left to inherit the world? Or is the future one more akin to the 'Gattacca' and 'Rollerball' scenario of huge Mega Corporations that control the world and know everything about anyone at all times? Genetic analysis controlling commercial decisions. Or is it both? Star Wars meets the Internet in a technological maze in which consumer behaviour is continuously tracked in real time via all encompassing loyalty scheme information flows?

Is Loyalty now a commodity?

In mature consumer loyalty scheme markets such as the UK a classic pattern of life cycle is observable: unique, through differentiation by product then service, to an end game of commodity. In the commodity phase cost management is the dominant focus, competition is intense, price tends to be low and the middle ground players are squeezed out. An assessment of the UK market for customer loyalty schemes is certainly showing signs of reaching this 'commodity' phase of development. In this phase of the game it is even more vital that companies operating loyalty schemes conduct some market definition and segmentation. It is essential to target specific customers, recognise the relevant competitors and formulate who is buying what, when and how? Failure to take this approach will inevitably result in a low differentiation programme with high relative cost; this is the road to disaster. Effective measurement becomes an integral part of this analysis since Finance Directors have now started to ask 'what are we getting for our money' type questions and customers have already acquired a wallet full of cards.

Customers in control

Recent research has again highlighted the view that consumers do want to be rewarded for loyalty towards their preferred supplier but they want rewards in the form of a more personalised service, benefits and privileges that are relevant to them as individuals. The world seems more threatening and complicated with every 'breaking news' media bulletin. Mergers, take-overs and growth-hungry stock markets threaten employees and CEOs in equal measure. Consumers crave continuity emotionally but understand logically that this is unlikely. Nostalgia and retro-design give comfort, evidence the huge success of the 'New Beetle' from Volkswagen. More control from the customer perspective, what has been termed 'transparent' or 'permission' marketing, looks the likely paradigm for commercial success.

In this context the smaller enterprise should have a head start on the 'blue chips' since they are built around personal initiative and relationships. The major retailer loyalty schemes are spending huge amounts in collecting, storing, and analysing customer purchase habits. The database should be designed to improve your process of delivering superior customer service; it is not an end in itself. Understanding the difference between data, information, and knowledge will be crucial to survival. A continuous 'learning loop' should be the objective for any customer loyalty scheme.

Listening to customers, delivering what they want, at a price and quality they want, and increasingly more important, at a time they want is the key to transparent marketing for the future. Forget the 'good quality at reasonable prices' mantra as the better-informed consumer in today's market is rejecting this middle ground. Too many schemes are chasing too few customers and not offering a differentiated or high value 'reward'.

'Super Size' versus 'Specialise' loyalty

Anticipating the future development path for customer loyalty management it seems that two scenarios look like emerging. In the 'Super Size' world we will see the merging, alliance and globalisation of existing customer loyalty schemes into huge integrated programmes. The airlines with their frequent flyer schemes set the loyalty card market rolling in the early 1980s and they are leading the way into a more integrated 'One World' future.

Consolidation of loyalty scheme administration will reduce costs; customer benefits will be consolidated and 'bundled' into relevant and related offers. The consumer message will be simplification, a one stop loyalty shop and the technical platform for the scheme will offer seamless cross sector and cross border functionality. The recent huge mergers in telecommunications and media are setting the stage for retailers and manufacturers to develop this 'Super Size' loyalty offering.

Expect increasing consumer concerns about the 'big brother' power of the consolidated database that these schemes will enable. Some of these concerns will be addressed via Government legislation but enforcement of the law will be a challenge. Witness the current issues around compliance with the existing Data Protection Act in the EU countries. Consumer 'opt-in' rather than 'opt-out' would take some of the heat out of this issue and we can expect operators of these Super Size Loyalty schemes to offer very attractive sign on inducements to consumers.

In the 'Specialise' world we should expect very targeted and individual loyalty programmes to emerge. In this scenario the emphasis will be upon the customer design of an individualised loyalty scheme. A 'mix and match' future in which the selection of market sectors, reward formats and technical platform will all be driven by personal choice. This end of the loyalty market will be the playground of high net worth customers, the cash rich, time poor who will value originality, convenience and status in their choice of schemes and rewards. The technical platform will be very clever and seamless between plastic cards, mobile telephones and Internet access. This is the world of WAP, Bluetooth and Broadband. A personalised service that seeks to appear totally individualised.

Loyalty 2001?

Which scenario will we start to see emerging in the next 12 months? I think the likely answer is both. Consumer response to material gratification is losing ground rapidly to a more difficult to define emotional bonding. The successful brands that have the potential to differentiate emotionally are already reinforcing this trend in the mind of their customers. Equally successful brands that have limited potential for emotional links to their customer base are seeking refuge in scale. Loyalty schemes that want to survive will track these brands positioning and adapt their offers to match. Loyalty schemes that fail to adapt their offers to match this new environment will not need to worry about the future. For them it will not exist.

Peter G Wray

The author is managing director of pgw Ltd. This article was first published in the March 2000 issue of Customer Loyalty Today.

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