BY ARNAZ ASHRAF
While many people still enjoy the thrill and madness associated with fabulous deals, such promotions have lost their appeal to most consumers over time. The reason? A deflationary spiral that has turned 25 to 70 per cent discounts into just another day at the mall.
The United Arab Emirates has been experiencing a retail boom over the past 10 years or so, with stores and high-end malls growing at an equally fast pace. But a strong dollar, falling oil prices, weakening consumer confidence and the rising popularity of online and mobile shopping are changing shopping habits.
How can this shift in consumer behaviour and spending be addressed? Is there a solution that is being overlooked? What about building customer loyalty? Does loyalty even exist in today’s world and marketplace?
Building customer loyalty
The effort of building customer loyalty dates back to the 1700s when merchants developed an initiative wherein they would give copper tokens to customers for redemption on future purchases. Very soon, it was discovered to be a very costly method of gaining customer loyalty and so merchants shifted from copper tokens to stamps.
In the late 19th century Green Shield Stamps became popular in Britain where customers were rewarded with stamps on every purchase, which could be redeemed for catalog products.
These types of schemes continued in a similar way up to the early 1900s, until Betty Crocker came with its Box Top programme in 1929, which laid the foundation for loyalty programmes as we know them today.
A full-scale loyalty programme of the modern era, however, is credited by many to have been started by American Airlines in 1981, with the launch of the first Frequent Flier programme.
Loyalty programmes have since then grown from strength to strength and today, it is seen as essential to forming good customer relationships.
It is a means to gain new customers, nurture existing relationships, improve the existing customer experience and satisfaction levels, and in the end, increase customer retention and impact the bottom line of the business positively.
At the same time, loyalty has also become an effective marketing tool, where by showing customers your appreciation, you generate word-of-mouth referrals, thereby enhancing your brand reputation and increasing sales revenues.
Based on the 2015 Aimia Global Loyalty Lens survey conducted across over 20,000 respondents in 11 countries, 84 per cent of consumers are members of at least one loyalty programme, a five per cent year-on-year increase. Aimia’s Middle East bureau also reported that UAE consumers subscribe to an average of 2.7 loyalty programmes in different sectors (closely aligned with the global average of 2.8 sectors), of which loyalty to supermarkets was highest at 43 per cent, followed by airlines at 35 per cent, and restaurants at 30 per cent.
Today, building customer loyalty is a whole different world. With the pace of technology change accelerating, a fast-changing world economy and the ever evolving customer base, it has now become imperative that any successful loyalty platformme must have the ability to quickly evolve to adapt to its target segment.
Crafting a loyalty programme that works
Loyalty programmes can cut across multiple industries. Whether it’s a discount, giveaway, cash reward, an entry into an exclusive raffle or creating an excellent customer experience, the whole idea is to be creative and use the best solution possible to thank customers.
An ideal programme can vary completely from industry to industry and requires to be customised to suit your business requirements. There is no one set formula that can be applied across the board. Yes, there are standardised ways of arriving at your solution – be it rules of earning points, redemption standards, tier upgrades, etc. However, the end product must be a solution that offers a win-win situation for both the business and the customers.
Over the past few years a number of established frequent flier programmes have gone back to the drawing board to rework their programme economics. This essentially means evaluating the cost per point/mile and the rewards on offer.
In the good old days, this used to be a very simple proposition. Not so anymore, as the method of evaluation of the cost per point/mile has gone through a whole shift in process. Why? Primarily because offering a redemption seat is not the same as offering an empty seat anymore. There is a cost to the business every time the airline flies with an empty seat on it and this cost to the business must be offset by the revenue generated from frequent fliers.
Customer loyalty is a complex subject in today’s environment. A successful loyalty programme should be able to provide a tangible benefit to the customer while also being able to generate a revenue stream for the business. So how do you come up with a well-crafted loyalty programme?
First the target audience and the customer demographics have to be studied in detail. Your brand must somehow offer a product that is either aspirational or part of the target segment’s daily lifestyle or requirement. Customer behaviour requires to be understood and any patterns that come up must be reviewed and analysed in great detail.
Next, a story needs to be woven around what the benefits are of your brand and the proposition that you are promoting. The economics of the programme have to be worked out in detail where the business profitability, breakage and customer value proposition need to be given due weightage.
In an ideal scenario, the process should be simple and the time and effort put into earning points or miles should be directly proportional to the aspirational quotient of the reward being offered. Add to this the exclusivity of tier upgrades and exclusive benefits – and it can be very exciting for some.
Frequent flier miles may be hard to come by for some not so frequent travellers. However, earning miles on your credit card which can be used to redeem an airline ticket makes the cross-selling proposition very attractive.
Similarly in loyalty programmes run by supermarket chains, the ease of earning points every time you shop with a perceived benefit of a Dhs 50 voucher at the end of the rainbow maybe reason enough for some customers to spend Dhs 5,000 at the stores.
It can get a little tricky for retail stores, but in this case it helps if you have offers that are very enticing every time you need to run a stock clearance, which can go out exclusively to your loyalty base first.
The loyalty base can also be invited for exclusive previews or product launches at your own brand or at other top-end events.
But important to remember is that customer loyalty is earned not only through tangible rewards, but through positive experiences with your brand as well. Apple for instance, does not incentivise customers via a loyalty platform and yet accounts for the highest loyalty in the modern world, entirely based upon the strength of the product that the brand offers.
While genuine loyalty is rare to come by today, the percentage of customers who indeed become loyal are the same customers who can also turn into your highest spenders.
Case in point, frequent fliers stick to their preferred airline of choice especially once they get used to the many special privileges being offered.
The future of customer loyalty programmes
With the rapid development in digital technology, customers can expect significant changes in the way loyalty programmes are crafted and implemented in the coming years.
For one, loyalty initiatives are likely to extend their presence to the online platform. More and more digital applications will be employed to allow customers to use their mobile gadgets to manage their purchases and add up reward points.
Recognition-seeking customers, however, will continue to show strong interest in collecting plastic loyalty cards – especially with most brands upping the ante, they would deem these cards are still worth carrying in their wallet.
The downturn of the economy, a plethora of sales in the retail market, the offers on airfares and sharp discounts in hotel rates simply because supply is more than demand is the current reality and is here to stay – at least for the next couple of years.
That being the case, these current patterns in the market require a brand to create and showcase something specific and desirable, distinct from what other brands are offering.
Today’s customer is smart. If price and value is what they are after, then at the click of a button they can compare products. A product differentiator or a special, new and innovative way of saying thank you is what is required.
Quite frankly, loyalty offerings in the UAE are yet to show much creativity in the way they are run, and definitely, there is still much room left for improvement in order to keep customers engaged.
That said, it is still a fledgling market and the stakes are high. If you haven’t yet woven a loyalty programme into your marketing strategy, you may be missing out on one of the best and easiest tools available for the success of your business.
Arnaz Ashraf is managing partner is brains at work