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Customer Loyalty Tales-a view from Europe

(With apologies to Geoffrey Chaucer, author of 'The Canterbury Tales' which provides the inspiration for this article.)

The Prologue

When in April the sweet showers fall,
And pierce the drought of March to the root, and all,
The veins are bathed in liquor of such power,
As brings about the engendering of the flower.

The idea of a collection of tales diversified in style to suit their tellers, and unified in form by uniting the tellers in a common purpose, was Chaucer's own. The tales of the pilgrims in 'The Canterbury Tales' come from all over Europe, and are related in a series of tales from one Pilgrim to another as they make their journey from Southwark in London to Canterbury.

With this idea as inspiration, your European correspondent decided to approach the question of 'where next for customer loyalty?' by asking a variety of experts in the study or application of customer loyalty to relate their tales on where we are heading over the next 5 years.

They each have their own story to relate, differing perspectives on one of the real challenges of marketing in the 21st Century, how does a supplier create loyalty in a disloyal world?

The Consultant's Tale

Our consultant is also the author of a very widely read book on customer loyalty.

His comments are therefore based on a very global review of existing customer loyalty and member clubs.

"Five years from today, customer loyalty schemes and other loyalty mechanisms (i.e. loyalty pricing, bundling or promotions) will have developed into even more important marketing tools than today. But the way they are set up and run will have changed dramatically, primarily regarding three aspects:

"Customer loyalty schemes will be made fully accountable for their success or lack thereof. Today, few if any loyalty schemes can quantify their impact on profit or revenue. In the future, they will have defined a set of precise and mostly quantifiable goals, have understood what dimensions need to be analyzed to measure goal achievement and have implemented the respective controlling tools. Those that cannot prove their efficiency will no longer be funded.

"The importance of the customer loyalty scheme database will increase. Customer-related data will be collected, structured, analyzed, interpreted and used more comprehensively and professionally. Companies will no longer be able to underutilize the scheme's potential to provide access to data, nor to ignore the hidden gems in the available data (i.e. POS sales data, behavioral data).

"Customer loyalty schemes will no longer be stand-alone marketing initiatives but will have developed into fully integrated marketing tools, linked to the rest of the organization and basically transforming marketing. They will be moving more into the role of an internal loyalty service center, closely working together with other departments such as product development, sales, channel management, logistics etc."

Stephan A. Butscher, Partner, Simon, Kucher & Partners Marketing & Strategy Consultants, London and Boston Office. Stephan is the author of "Customer Loyalty programmes and Clubs" (Gower Publishing, London, 2002) and can be reached at www.simon-kucher.com.

The Academic's Tale

We asked from an academic perspective what is the future of customer loyalty?

The comments come from a Senior Research Associate at Templeton College, Oxford University. Templeton has close links with International Retailing and has undertaken several primary research projects into customer loyalty programmes over the last 10 years. The comments from our academic perspective are therefore a blend of academic rigour in approach, combined with retailing insights at a senior level in organisations.

"Unless there is no other perceived choice, customers will only stay loyal to products, services and organisations if they continue to at least meet customer expectations. This has always been the case and will continue to be the case in the future. What changes over time is that customer perceptions and expectations continue to develop. In an information-rich society, these perceptions and expectations may change very quickly. Customers may seek out more alternatives and demand more. This is particularly the case for information-rich, patience-poor customers - who tend to be younger and employee, rather than older or unemployed.

"At the same time, successful product and service providers seek to reduce perceived customer options by marketing unique products and services that provide clear and tangible improvements on previous offerings. This requires an understanding of current customer requirements as well as an anticipation of future customer requirements. Loyalty programmes, market research and 'gut-feel' may all play an important role in the development of such valued products and services and the communication of this offering.

"The conceptual drivers of loyalty and disloyalty do not change: perceived choice and actual experience. Customers do change: increasing their knowledge, experience and expectations. As information becomes more accessible and more personal, the scope for customer disloyalty may increase. However, those product and service providers that continue to develop their offering and communicate this effectively will continue to retain loyal customers."

Richard Cuthbertson, Senior Research Associate, Templeton College, University of Oxford, England.

Templeton College, University of Oxford, is unique. Dedicated to management studies, strongly connected with international business and a full graduate college of the University, it merges Oxford's tradition of academic excellence with individual executive education.

The Manager's Tale

We asked, is it possible to create loyalty in disloyal world? The comments below come from the loyalty manager responsible for one of the largest single brand customer loyalty programmes running in the Czech Republic. The programme is developing and expanding, with more partners and a broader customer value proposition being developed for the future.

This is from an economy still emerging from Marx to a market economy.

Average incomes per head are only 50% of the European Union on a purchasing power basis. Consumers are very value orientated and will experience big changes as their economy becomes part of the European Union in 2004.

"I have been working with loyalty schemes for the last 5 years and I did not hear too many positive comments on loyalty programmes. It is too expensive, not successfull and much work with tiny profit. Honestly, this opinion mainly comes from managers and especially from 'media believers'. But ask customers what they think about loyalty schemes; they will tell you that even to pay a small attention is worth it to them. That gives me trust about the right way of marketing approach.

"I am strongly confident that to attend to my customers pays back. I stress 'attend to'; not create another expensive loyalty scheme. As I see from discussions with my key customers, they don´t separate loyalty programme from product mix, services from the company. And we should deal with loyalty programmes the same way. The relationship is alway between one company and one customer. One to one. If a loyalty scheme could help to make this relationship better it is right tool. programmes seen as a tactical marketing action will disappear. That is a fact.

"Another matter is effectiveness. We launched Bata klub 4 years ago. In 1999, we didn´t see the benefits of cooperation with another companies. We wanted our own club: we were not able to admit that we serve the same customers with other speciality retailers. Now I see that it is much more effective to run a joint loyalty scheme. Why should we issue 5 cards to one customer (which they use 2 times a year), to create 5 call centers and so on. It is much more about vanity and much less about customers. People hail anything what makes their lives easier. And coalition programme kills two flies with one strike. The future lies in coalitions. We must cooperate: I feel is the only way how to save money and bring customers more value. As a response, they will be more loyal and give us more money."

Radek Hrachovec, Manager of Bata klub, Czech republic.

Bata is the leading shoe retailer in the Czech Republic with 67 stores and the Bata klub was launched as a single brand programme in September 1999. With well over one million members and an active participation, the programme has given Bata company the ability to get to know deeply its customers, has found their top 20% most important ones and prepared special treatment for them. Bata also introduced very successful Bata home delivery service based on customer comments and suggestions that came from the dialogue created within the programme.

The three 'Tales' related above are from different perspectives but have a common thread running through their view on how customer loyalty will develop in the future.

• Standing still is not an option; if you are not developing your programme continuously then you are going backwards
• Customer expectations are increasing and they view the entire value proposition not just elements of it
• Rationalisation and consolidation amongst programme suppliers seems inevitable as customers demand 'more for less' and this covers convenience as well as value drivers of loyalty

The Consumer's Tale

Finally we decided to conclude this overview by asking some younger consumers what they feel about the efforts of retailers to win their loyalty. This was not an attempt at precise market research; it was more of a 'sound bite' reality check on what was being suggested as the future for loyalty by some consumers who will be part of that future.

The feedback was interesting and suggested that further, more in-depth understanding needs to be developed on the next generation of 'disloyal consumers'. They understand the game being played; they have few illusions about the offers being made to them. The late-teens-to-late-twenties consumer is a difficult and mercurial segment for most retailers to engage. They may have dysfunctional and occasionally chaotic lifestyles that do not fit easily with the classic approach to large scale customer loyalty programmes (but then you are only young once so what's changed). The issue for loyalty marketers is whether this is a passing phase or an omen of the disloyal consumer of the future.

Matthew, age 21, from Reading, England

Does any retailer do anything that will encourage you to be more loyal to them as a brand?

"No, not really."

How do you feel about retailers collecting details on your buying habits and interests?

"I know they're doing it...I don't really mind."

How do you feel about retailers approach to you as a consumer, is it carpet bombing or precision guided?

"More of a mine field."

Sarah, age 21, Oxford, England

"Good service makes me loyal. They're more likely to make me disloyal: like when they don't give you a cash refund for goods that you take back."

"I don't understand this Nectar thing...something about I have to use it in my local branch? Boots Advantage card is good: you can use it to buy things you want. But with Nectar...I mean, who wants to buy a burger?"

Jonathan, age 22, Clapham, London, England

Does any retailer do anything to encourage you to be more loyal to their brand?

"Allsports - Discount for using my Barclaycard."

Do you feel any reciprocal loyalty to a brand and why?

"Nike - Feel good about wearing Nike because top athletes use their clothes. Also their shops have a no quibble returns policy. Nokia - Great phones, simple, good features, usability."

How do you feel about retailers collecting info on your buying habits?

"Don't mind."

Liz, age 27, Surbiton, England

Does any retailer do anything to encourage you to be more loyal to their brand?

"Sainsbury's' - with the Nectar card - would shop there over Tesco etc but only if it was convenient e.g. if a different store was closer I would go to them."

Anyone else?

"Boots - same as Sainsbury's with the Advantage loyalty card. Blockbuster - get sent DM piece of all latest films with specific money off vouchers, would encourage me to rent more often and stick with them. First Direct (UK based telephone banking service with an excellent market reputation for customer service) - excellent customer service, answer phone quickly, resolve problems within 24 hours, send text messages of balance to your phone."

Do you feel any reciprocal loyalty to a brand and why?

"Don't feel any reciprocal loyalty to any brands. Feel loyal to bank (First Direct) and mobile phone supplier (O2) as I have been a customer for a while."

How do you feel about retailers collecting info on your buying habits?

"No problem, but strongly against being sent unsolicited mail, e-mails, text messages."

Mat, age 28, Richmond, England

Do you feel any reciprocal loyalty to a brand and why?

"No - Respond to good offers."

How do you feel about retailers collecting info on your buying habits?

"Fine - it is what they do with it that's the issue."

These comments from the younger end of the market are only sound bites but the clear message for any retailer contemplating their loyalty is that they feel very little rational loyalty to any brand and view the entire customer service proposition as important, not just the rewards element of an offer. Trust is going to feature highly in this consumer groups rating of suppliers.

As the Pardoner's Tale stated,

'Is it a bargain,' said the first, 'or no?
For I can tell you in a word or so
What's to be done to bring the thing about.'
'Trust me,' the other said, 'you needn't doubt
My word, I won't betray you, I'll be true.'

Screw up on the trust issue with this generation of consumers and they won't allow any supplier to live to tell another tale.