Competitive Advantage through a Loyalty Plan

“You don’t earn loyalty in a day. You earn loyalty day-by-day.” Jeffrey Gitomer

What is your understanding of a loyalty plan? Is competitive advantage only had through increased finances or is there more? The phrase loyalty plan itself indicates that it is not a one-off or something that can be justified simply by adding to the bottom-line for a while. Competitive advantage through a loyalty plan is long-term and sustained. Many companies err when they believe that customers that use them often are loyal customers. There is no evidence to support that – they could be using your company and its products because they have not yet found an alternative solution. It is obvious that if they are not loyal to your company, they would switch as soon as something perceivably ‘better’ or different comes along. Smart companies know that to have competitive advantage they need loyal customers, not just regular customers and these companies put together a meticulous and well-defined loyalty plan to ensure that they have a maximum number of loyal customers.

We have learned in the past that not all customers are equal and neither are all of them likely to be loyal. The reasons for this are many and don’t necessarily imply that your company is lacking in any way. What companies must however focus on is to create a robust loyalty plan for customers who already ‘qualify’ as loyal and those who could potentially become loyal customers. Of course, this seems like a differentiation between customers, but the fact is that this is exactly the purpose of a loyalty plan. Companies can clearly segregate customers based on prior data, buying patterns and current behaviour to determine which customer is only a regular one and who their loyal ones are and which ones can become loyal with a few slight nudges via the loyalty plan.  This plan or programme should be so designed that it appears attractive and ‘personalized’ to the group of customers who come under the realm of loyal.

As pointed out before, sales personnel have their targets and work largely on commissions and hence their sole aim is to make the sale at that moment. This ignores a rather famous quote “Make a customer not a sale”. The idea should be – even at the stage of acquiring new customers – to make each customer a repeat one – to make customers who will be loyal and profitable.  When trying to gain a new customer, target customers who will be potentially loyal and avoid customers who will be unlikely to provide repeat business beyond the current deal. If you must market to customers who may not repurchase, it would be prudent to limit the resources spent on this particular segment. Use data and ‘loyal customer’ history and behaviour to determine which new customer exhibits similar traits. Focusing your company’s efforts on such customers would lead to competitive advantage. This is part of a loyalty plan.

Let us look at the benefits from a structured and robust loyalty plan – the benefits of which can be reaped by any business, any company.

  • We have recently spoken about how crucial to success customer retention is. A loyalty plan will ensure that your existing customers stay on and over time become more profitable and loyal. A study reveals that a company with even 70% retention rate would have lost at least two to three times the number of customers as opposed to a company with a retention rate of 90%. That is a huge difference and can be the difference between long term success and failure. A consistent loyal plan will ensure that customers have reason to stay on and the plan also provides invaluable data to the company about what they need to do to ensure that their offerings and service very closely match and reflect the expectations and needs of the customers. When a loyalty plan begins to produce rewards for customers, it fuels enthusiasm, engagement and an interest in the company that translates to customer retention and loyalty over time.
  • A loyalty plan can be tweaked to attract and interest a different set of people too – prospective customers. The communication would need to reflect enthusiasm, enlist clearly the benefits of doing business with your company. However, it must be remembered that acquiring new customers is always much more expensive than retaining the current ones and hence while you could use some aspects of a loyalty plan to attract more customers, the central figures of this plan must always be the existing customers.
  • We have already said that customer segmentation is a good idea as it is easier for companies to understand which customer should be focused on more and which need minimal ‘fussing’. For your best customers, the rewards of the loyalty plan should be better. As other customers from other segments inch their way up, they should be moved into the top slot reserved for the best and loyal customers. This way customers know that their investment and time is being appreciated and will be more than willing to provide repeat business and also be your company’s ‘ambassadors’.
  • Segmentation of customers also helps in understanding which ones are clearly unprofitable and also which customers only buy when there are discounts or schemes. Such customers cost your company more money to maintain than the actual business they generate. Your loyalty plan must exclude such customers from its domain as it discourages such ‘bad’ customers from staying on. The ironical part is that still some such customers do not leave even when the company consistently ignores them by not including them in their special plans and schemes.
  • An earlier exposition spoke about the value of lost customers – customers who stopped doing business for one reason or another. Including them in your loyalty plan and winning them back can prove more lucrative that a completely new customer. Another study clearly shows that companies have a 5% chances of turning prospective customers into actual ones, whereas the chances of winning back and making profits off ‘lost customers’ is pegged between 15-20%. Tweak your loyalty plan to suit the reason they left – for example if you messed up then the effort would be greater than if they left because at that time they had no current need for your offerings. Make a thorough study of what they are currently into and what their needs could be – send out personalized communication via their preferred channel, introducing them to your ‘loyalty plan’.
  • Your loyalty plan must not only take into account what the customer is currently worth but also what their projected worth and value would be during their time as customers. Moulding your plan according to these possibilities, would move you closer to retaining them for longer and also ensuring that their ‘value’ for your company increases to.
  • Apart from profits, being able to build and sustain cordial and friendly relationships with your customers is a great advantage of a loyalty plan. Relationship building and management has become more crucial than ever given that customers have so many choices but customer tend to stick with companies who ‘they like’ and are comfortable with. It is a bother to explain your needs and method of operation repeatedly and customers are happy to remain loyal to companies that not only understand their needs, but can also anticipate them. With relationships, customers learn to trust and depend on your company and over time will become highly dependable and loyal, not just providing huge business but also referring your company on to others as well. Brand advocacy is the highest form of customer loyalty that is achieved through a loyalty plan that takes relationship building into account. Customers tend to trust each other more when starting business with a new company and a great referral ensures that new customers approach your company without the initial apprehension. This also significantly reduces the amount of investment companies need to make on promotions, marketing and advertising. The initial phase is already covered by the great referral from an existing loyal customer.

The market scenario now has become more competitive and cut-throat than before and companies face a daily struggle to keep customers and ensure that their needs are met. With a firm customer service strategy and a robust loyalty plan, suited to different customer segments, companies can not only gain a competitive advantage but also continue to strengthen it over time, making themselves impervious to competitor attacks. Customers are happy too – they get whatever they want in one place and don’t need to make too much effort to get it.

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