Get serious about Customer Loyalty – you will save more than just customers

It’s no secret that the current economic downturn has changed consumer purchasing behavior, and these changes have made many consumers reconsider their loyalties to certain products, brands and companies.  In fact many leading brands have reported a drop in the total number of loyal consumers over the past two years.  These consumer defections and high customer churn rates have major financial implications for organizations. Recent CMO Council research ”Losing Loyalty”  finds heavy customer loyalty erosions — 52% of highly loyal consumers in 2007 either reduced loyalty or completely defected from certain leading brands in 2008.  Only four out of ten brands retained 50% or more of their highly loyal consumers from year to year.  Florida’s Natural (an orange juice-producing cooperative) found that 64.8% of their highly loyal consumers either reduced loyalty or completely defected from the brand in 2008. Cumulatively, these consumers spent 34% fewer dollars on Florida’s Natural: this represented an 8% decline in potential overall revenue for the company in 2008.

While the drop in revenue is a huge issue, marketers are not just worried about lost revenue in the downturn due to temporary financial strains. The concern is that consumers who switch now will build new brand experiences and allegiances that will endure past the recession.  Studies of consumer behavior from previous recessions have shown that consumers who switch brands during economic downturns stick to their new brand well into periods of economic recovery.

It’s important that organizations address customer loyalty by identifying and engaging with at-risk customers before they churn.  Consider this example, Porsche AG developed an entirely new process to proactively address issues with their vehicles, often before the customer even experienced any symptoms, and significantly improved brand loyalty.

When was the last time your dealer called you to proactively repair a known problem with your car?

Organizations need to develop customer loyalty programs that are part of an overall customer-centric strategy, where customers are segmented into meaningful groups and specific strategies are developed to market, sell, and service to these groups.  And the customer loyalty programs should promote profitable customer behaviors through providing benefits (such as points for intended customer behaviors where these points can be redeemed for meaningful rewards).  The objective is to create positive customer experiences with the brand and the organization — ultimately translating into increase customer loyalty. 

Recent studies have shown that the current climate is perfect for investing in customer loyalty programs.  According to a Colloquy research “After the Meltdown”, despite the recession, more consumers across all demographic segments are participating in rewards programs than ever before.  Overall consumer participation in loyalty programs has increased 19 percent in the U.S. since 2007.  Moreover, U.S. loyalty program memberships increased from 1.341 billion to 1.807 billion from 2006 to 2008—a growth rate of nearly 25 percent.  And U.S households now have an average of 14.1 loyalty program memberships.  The bottom line is that consumers continue to find value in rewards programs as a way to stretch household budgets by earning rewards, gift certificates, fuel rebates and cash back on their purchases.

Successful loyalty programs will greatly enhance the customer experience, increase customer retention, and foster development of a community of people who serve as advocates for the business.  In crisis there are always opportunities and the current recession may provide a powerful opening for loyalty marketers to build sustainable customer loyalty to keep the most valuable customers, encourage others to become more loyal, and attract new customers.

- Bernard Chung , Director CRM Solution Marketing, SAP |  bernard.chung@sap.com

Check out other blogs on the customer loyalty topic:

Effective Customer Loyalty Management more important than ever before

“Protecting margins through loyalty programs”

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