PERFECT PROP

Customer loyalty can be confusing. Just as companies realise that their biggest growth potential lies with existing clients, they find themselves lambasted by articles decrying the high cost of loyalty schemes to consumers.

Should they worry? Well, the answer lies in the essence of loyalty programmes. Even if the programme costs customers more, the cost is immaterial as long as they benefit. British Airways’ successful Executive Club offers an example.

The cost does not deter customers because they perceive it partly as a status symbol. It is as good as having an Amex Platinum Card.

But the benefits are more than just status. I was in Los Angeles with my family at Christmas, flying economy, and the check-in queues were long. Dreaming of airy waiting rooms, I went up to Club World and asked if I could check in there. I showed them my executive card and they said no problem. I also asked if I could have an upgrade and hey presto, I was upgraded. One of the benefits of Executive Club, or a reward to a loyal customer?

Such schemes lock consumers into a brand because they feel they are life enhancing, while the retailer keeps constant tabs by measuring the effectiveness of loyalty schemes. They require innovation to maintain their appeal, but that appears to be no problem for BA.

On the other hand, a loyalty programme may be widely available and yet never taken up if the benefits aren’t perceived. The ultimate in mass-market cards are those offered by the grocery multiples, but I wonder how many families regularly shop at such stores and forget to use their loyalty card. Those benefits haven’t won me over, and perhaps I’m not alone in never making the most of my Reward Card.

Undoubtedly supermarket cards appear to benefit the customer, but at whose expense? Are brands having to pay for them, even if the supermarkets’ stated intention is to work in partnership with brands rather than fight them?

It’s difficult at times to determine whether loyalty cards have turned supermarkets into lemmings or sheep. If lemmings, the current love affair with plastic will drive them over the abyss, if sheep, life is going to get very boring as differentials diminish.

The name of the game is getting more shoppers into stores, more often, even though some multiples may possibly pay lip service to the notion of retaining and building their loyal customer core.

The irony is that British supermarkets have the highest profit margins in the world. They could afford to give a little more back to the customer. By contrast, continental firms like Lidl, Aldi and Netto are not getting involved because they already offer discounts.

In the long term, will customers be swayed by price, or does it have to be a total package to retain loyalty? The answer lies in the psyche of British shoppers, because they can be said to define themselves by where they shop.

Retail produces a great number of loyalty programmes, but it is easy to ignore another sector which is vital to a large proportion of the population – sport. An influx of media and sponsorship money means that, profits and turnover are up in the high-profile sports, but this doesn’t mean that the consumer – the fan – is always experiencing satisfaction and will always remain loyal.

Some sports have tackled the subject better than others, but the one to watch in future will, I feel, be rugby. Take Harlequins. This 100-year-old brand has the opportunity of becoming the Manchester United of rugby union. It has a substantial income from investors, making it potentially the richest club in England, with a wealth of international fans. Harlequin clubs have sprouted up around the world, with spiritual rather than financial links.

The difference between Harlequins and soccer clubs is that the Harlequins were perceived as a brand which needed to be nurtured and not sold cheaply. They have already taken on strategic recommendations to increase funds, as well as promotional activity for the company. As the team’s professionalism has grown, so has its marketing ability. Last year, it announced the richest club sponsorship deal in rugby union, 1.5m from NEC over three years.

A first step was the launch of “Quinsessential”, a mail order brand which acts as a corporate statement encapsulating the quality of Harlequins. The next is the launch of a debenture scheme for the financing of a new stand.

Rugby union supporters are unique, as they tend to come from a high socio-economic group and have mature and sophisticated buying patterns. They have a strong sense of loyalty. Leicester, for example, get between 12,000 and 15,000 people at their matches.

At Harlequins, the members own the club. Since loyalty is in-built, clubs have had to find a way of rewarding fans and building for the future. It has required subtlety, since the implementation of a loyalty scheme would be almost insulting to a supporter.

Loyalty is, I feel, at risk in soccer. If broadcast and sponsorship cash ever dries up, it’s to be hoped that some clubs won’t find they have stretched their fans’ loyalty too far. I believe that many of the top clubs in the first and premier divisions are seeing little reward for their long-term loyalty.

It could be that the bigger clubs will make a mistake common to many companies – believing in their own permanence. Customers may be defecting in droves, yet because sales and profitability continue to rise, company directors refuse to face up to the problem. One way to help them is to introduce a six-stage assessment and implement a programme (see table) which forces them to confront the issues of customer loss and create value from increased loyalty.

The key is facing the truth about loyalty problems and improving performance. Some never manage it, or fall back into old habits as soon as the pressure is off. It takes at least several months for an average company to be ready for the implementation programme.

Some companies work harder than others at customer loyalty. In the automotive industry, BMW is regarded as a shining light. Throughout the recession the company managed to increase sales, which owed much to a well thought out, well targeted programme which above all did not lose sight of the customer.

I bought a BMW last year, the first new car I have bought in my life. Since I thought it was running badly I put it in for a road service. I was told that it needed, among other things, a new handbrake and a new engine block. Even though it was past the time when I should have taken it in for a service (more than a year), the garage did not quibble and I did not pay a penny – it all came out of the warranty. After all, a BMW should not have these problems.

This is a visible reward, and fosters real loyalty. BMW sells a premium product, yet when it brings customers in at the lower end of the market it then succeeds in getting them to trade up to the next level. It just goes to show that a loyalty programme should not be a separate tool within the marketing mix. It must be an integral part of the company philosophy, with staff and work practices all geared to retaining customers.

BMW’s results show that its strategy is working, and this introduces an element which is often forgotten: loyalty programmes are measurable. Obviously, the first stop for a company is to examine its sales proposition, the level of customer satisfaction, and face up to the results. If it then chooses to implement a loyalty programme it can monitor its success.

It won’t have to do it on its own. I think agencies which provide integrated marketing solutions should have the strength to say: “This is how much a programme costs, this is what the rewards will be, but we will defer our rewards until the cost of the programme is proven.”

Now that is rewarding customer loyalty.