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BW Businessworld

Fickle Customer, Elusive Loyalty

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Is customer loyalty dead? It may not be, but many marketers will admit that customers are certainly less loyal today than they were a couple of decades ago. This is especially true for categories where too many competitors have entered the market, and for segments where value and price matter a lot. In products where technological parity has been reached and where the customer buys regularly, customer loyalty is almost non-existent. In auto industries, marketers complain that customers jump ship each time they change cars because they want to try something new. In mobile handsets, executives worry that the next new phone from a rival will lead to their existing bestsellers losing customers in droves.

In the service sector, customer loyalty can still be counted upon — especially if you provide a level of service superior to your competitors and also have weak rivals. Consider the aviation industry, for instance. IndiGo holds on to its pole position because it has developed a reputation for unrivalled efficiency and on-time performance. However, it can hardly breathe easy. New competitors entering the market can woo customers away — at least in the short run — because of the novelty factor. Similarly, every time an existing rival comes out with a discount scheme, IndiGo needs to come up with something similar to make sure that passengers do not desert it.

In organised retail, marketers need to worry about customer fickleness all the time. As an executive at one of India’s organised retail pioneers pointed out wryly, he needs to worry not only about every new shop opening closer to his customer’s house and the plethora of online shopping sites, but also about the new grand outlet that has just opened across town, which offers a new experience.

If customers are becoming less loyal by the day, why do so many companies launch and run elaborate loyalty programmes? One reason is that even fickle customers tend to keep coming back and spending if they have a loyalty card. The customer loyalty programme is meant to better recognise the customer — and to reward him or her for spending money on a service.
Over the years, loyalty programmes have evolved and started targeting customers better. Big Data collection and analytics have given a boost to them. A better analysis of how the customer spends and what his or her trigger points are allow companies to customise rewards.

The best marketers do not see customer loyalty programmes as isolated schemes. They integrate them into their overall marketing strategy, which also includes CRM, advertising and other components. In our cover story this issue, senior associate editor Chitra Narayanan looks at what makes loyalty programmes tick — and how to design a good one.

(This story was published in BW | Businessworld Issue Dated 02-06-2014)