A CURRENT loyal customer is worth five times more than a new customer, but too many companies are preoccupied with customer acquisition strategies, according to marketing commentators Kevin Clancy and Peter Krieg.
In their book Counter Intuitive Marketing, Clancy and Krieg argue that most companies don’t know what a loyal customers is worth to them in dollars and cents.
“Generally a current loyal customer is worth five times more than a new customer,” the book says.
“Nevertheless, most companies seem fixated on customer acquisition strategies, a phenomenon we have labelled as the Death Wish Paradox.”
Carlson Marketing Group Australia and New Zealand managing director Karl Schuster extrapolates, saying some companies are resorting to “hit and run” tactics to snare market share.
“The customer is supposed to be king, yet many companies have lost focus of the customer and are resorting instead to rash tactics to snare market share,” he says.
“Many of the initiatives being developed are little more than sweeteners or bribes.
“This is not the way to build long-term, profitable relationships with consumers.
“All it does is create loyalty program ‘prisoners’ who seek to escape the brand once they have redeemed their points.”
Loyalty—a pipedream?
Recent research commissioned by the Carlson Marketing Group found only 8 per cent of respondents felt “extremely close” to brands, while 60 per cent felt “distant” or had “no preference” for brands.
“The research indicates many companies are failing to meet—let alone exceed—consumer expectations of what they want from a relationship,” Schuster said.
“This research has a number of key messages for Australian business.
“Consumers are looking for companies who walk loyalty, not just talk it.”
Professor Bill Yost, from the acclaimed Anderson School of Management UCLA, says engendering customer loyalty pays great dividends.
“Retaining customers has huge pay-offs in at least four different ways,” he says.
“If you want people to be loyal and to stay around then you have to continue to provide them with real value.
“Loyalty isn’t built by acquisition, it’s all about keeping customers content and happy.”
Rapp Collins Worldwide senior vice-president Don Neal says consumer trust in companies is diminishing and the balance of power has shifted firmly in the customer’s favour.
Neal, in Australia recently as part of a fleeting visit, says consumers are now “largely in control”, yet some companies are playing a game of catch-up when it comes to customer relationship management.
“Customers are less tolerant, more demanding and often feel an attitude of indifference,” he says.
“The customer is in charge, brand loyalty matters more than ever and CRM (customer relationship management) is a strategic imperative.”
This shift in the balance of power means it’s no longer a case of product versus product, but rather, business model versus business model, according to Neal, and CRM has an important role to play.
CRM tug-of-war
Ron Swift, author of the book Accelerating Customer Relationships: Using CRM and Relationship Technologies, says an intimate knowledge of one’s customer base is crucial to creating profitable and loyal relationships.
“Organisations that have placed customer information at the centre of their value chain and business architecture, have excelled,” he says.
But he points out that an element of guesswork still exists within companies that have not embraced CRM.
“Too many companies have not really embraced customer relationship management,” he says.
“They try to guess what will entice the customer instead of finding out in advance.
“Today, as ever, it may be their survival that is at stake if they do not institute it appropriately or correctly for their markets and customers.”
Swift says CRM should be integrated into a company’s everyday practices and organisational structure to avoid a tug-of-war scenario.
“CRM should be integrated into everything a company does, everyone it employs (even suppliers), and everywhere it transacts,” he says.
“Ultimately each company must decide what CRM means to the organisation and to the future of its success in the marketplace.”
Yost agrees, saying the business of creating and keeping loyal customers is an “organisational deal”.
“Marketing doesn’t make loyal customers, the organisation has to create loyal customers.”
Yost conceded that a CRM tug-of-war is present in some companies, with IT departments grappling with marketing chiefs and senior management for “control” over CRM.
“IT (CRM) is not something that is assigned to a particular group and no one should have a lock on it,” he says.
“Anybody that comes into contact with customers and customer problems needs to be aware of how to deal with it.”
The brand vs the bribe
Neal, senior relationship manager for clients including Reuters, Mercedes-Benz and Exxon Mobil, says building a brand relationships based on an exchange of mutual value is critical in the loyalty arena.
He asserts it’s the “brand, not the bribe” that is central to building such relationships and says there are three levels of bonding in customer relationships:
1) Financial bond—rewards, points, incentives, promotions etc.
2) Social bond—based on experience and individual relationships.
3) Structural—database, service delivery systems and technology.
Neal says loyalty programs based on incentives and rewards can be copied and become adversarial and describes financial bonds as “only one leg of the stool”.
Structural bonds, on the other hand, can aid in building trust consistently over time.
No matter what level of bonding exists between buyer and seller, Neal concludes a company can’t bribe customers to be loyal.
“The winners in this game will build and cultivate consumer trust,” he says.
“If they (companies) don’t see the light, they will certainly feel the heat.”
Loyalty marketing: what’s next?
Patrick La Pointe, senior vice president of US company Frequency Marketing, says it’s a case of “plastic proliferation” in today’s world and share of voice in the cluttered loyalty card category is becoming increasingly expensive.
He warns that loyalty programs must offer real value and recognise and reward customers for their patronage, or risk falling over.
“Reward and recognition are equally important,” he says.
“Hard benefits are not a sustainable strategy.”
Experts agree that the loyalty marketing landscape is in a state of constant flux and a “wham bam, thank you mam” approach to relationship marketing simply won’t work.
“Too many companies are building loyalty programs around simple ‘hit and run’ tactics where they flood the marketplace with short-term special offers or deals in a desperate bid to win customers, generate a fast buck and grab a few points of additional market share,” Carlson Marketing Group’s Schuster says.
“It really is a ‘wham bam, thank you mam’ approach to relationship marketing and it isn’t working.”
“The consumer is now beginning to wake up to what the loyalty abusers are trying to do.”
