Price is not a loyalty factor

I saw Steve Hemsley’s article (MW March 16) and I agree with his analysis. Moreover, I believe the results of the Evans Hunt Scott (EHS) study are symptomatic of an even wider problem.

Technology is facilitating one-to-one marketing, and companies are using this to secure loyalty. However, at the same time consumers are becoming capable of comparing prices between companies and countries in almost real time. The only differentiators are service and brand equity. Everything else is a zero sum game.

To compete in this environment, you need bigger and bigger economies of scale. The plight of Rover, and the general trend of industrial and commercial consolidation, proves the point.

Having been head of Sainsbury’s business insights department for nearly three years, and responsible for putting in place much of the technology required to use loyalty data, I know that one of the biggest uses of such cards is to offer price discounts. But, as John Ruskin said, any fool can make something a little cheaper, and, as many marketing studies have concluded, price reductions do not drive loyalty.

The real long-term value of “customer knowledge” is differentiating the brand or service from its key competitors so that price becomes less important. This requires in-depth market research and a combination of loyalty data and other sources of information. This is classic marketing. Current technology-driven initiatives which enable retailers and manufacturers to gain short-term advantage by differentiating on price will begin to unravel sooner than the computer corporations that supply these systems will let on.

Make no mistake, though, I am not suggesting that one-to-one marketing, coupons from kiosks and all the other mechanics that customer-level data permits are not worthwhile. Far from it. The short-term profit gains should be taken. But for marketers this is a golden opportunity to create brand equity and achieve loyalty. Otherwise, loyalty will disappear faster than water in the Sahara.

I firmly believe this is where the future lies. I can see that the use of such data, in combination with in-depth market research among the key customer groups identified by behavioural segmentations, is the way to discover how to talk to customers.

Steve Messenger

Director

Customers in Focus

Research in Focus

Ascot, Berks

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