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Loyalty schemes could come back to bite businesses

THE battle for market share may have driven businesses of all sizes to develop discount and loyalty schemes, but market research suggests that loyalty is not the powerful marketing tool it might appear. It seems careful service is the key.

Loyalty cards are increasingly common in retail outlets, particularly those in the service industry and hospitality.

At the big end of business the airlines in Australia, including Ansett before its collapse, ran successful loyalty programs offering frequent fliers the opportunity to redeem frequent flier miles.

The Coles/Myer shareholder discount card allowed the retail giant to offer shoppers a discount on purchases.

Underlying all these schemes is the concept of customer loyalty, but according to Keystone Management Services director Steve Simpson, this thinking is flawed.

“At a conference I recently attended the managing director of Hallmark Cards said there was no relationship between (customer) satisfaction and loyalty,” Mr Simpson said.

“A customer can go to any business and be satisfied with the service, and this certainly applies in hospitality.

“What they discovered at Hallmark is that the strongest predictors of loyalty are the measures of care.”

Put simply, if customers believe a company cares for them, they are more likely to return to that outlet to make further purchases.

Although making a customer feel cared for isn’t the easiest thing to accomplish, many market analysts believe consumers are keen to show their loyalty.

“This is really powerful stuff,” Mr Simpson said.

Many of the loyalty programs in place are more focused on price than any measure of care or service.

“What Qantas is doing and what the cafes are doing is trying to secure loyalty through price,” Mr Simpson said. “The implication is: ‘if you do business with us we’ll give you a discount’.

“So many businesses are just missing the point. If they just demonstrated that they cared they could forget about the card.”

Mr Simpson believes that, rather than employing loyalty or discount cards, businesses should engage in dialogue with customers to determine the best way to demonstrate that they care.

This doesn’t just apply to the small operators. Big businesses also need to be vigilant to maintain a strong level of service and the care factor.

“With a high volume of service businesses very easily become robotic in their style of service,” Mr Simpson said.

“I think many miss the point. In many cases I think loyalty cards are really just discount cards.”

Marketing Focus managing director Barry Urquhart maintains that consumer loyalty doesn’t exist as many businesses believe.

“A lot of people are getting into loyalty programs without understanding the objective,” Mr Urquhart said.

The Fly Buys program that has achieved some success in Australia has been sold into New Zealand but the focus has shifted away from loyalty.

“Fly Buys is the most successful card in the world, but that’s not a loyalty card, it’s a strategic alliance card,” Mr Urquhart said.

“Fly Buys clients are using the card to get information and jointly make offers to their members.

“They are now saying there’s no such thing as loyalty.”

One of the driving forces for loyalty programs appears to be the customer relationship marketing (CRM) phenomenon.

CRM focuses on developing a dialogue with existing consumers and then developing a database of information to profile potential new consumers.

“A lot of people get into it (loyalty schemes) because they’ve heard about CRM,” Mr Urquhart said.

“You should never reward people for doing business with you. You reward them for increasing business over a specific period of time and really the reward should be in the value of the product or service.”

Research suggests just 2-3 per cent per cent of customers will respond to loyalty programs.

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