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Getting to grips with the future of customer loyalty

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24th Apr 2009
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This year will see a greater focus on the dynamics of customer relationships and loyalty, according to new research by the Logic Group and Ipsos Mori. MyCustomer.com looks at the key findings and what firms see as the priorities when it comes to loyalty over the coming months?

By Louise Druce, editor

The credit crunch has shifted the emphasis from retention to acquisition of customers, which has led to a bigger focus on improving customer loyalty. But as loyalty and customer satisfaction are certainly not new concepts, what are firms doing differently to move beyond tracking their efforts to create a deeper and more rounded understanding of its potential benefits and the impact on the bottom line – especially when barely half of UK consumers are signed up to a loyalty scheme?

According to a new report from The Logic Group and researchers Ipsos MORI, which polled firms up and down the UK to get a snapshot of their attitudes and actions when it comes to customer loyalty, firms need to urgently rethink their approach and concentrate on improving the customer experience.

"As consumers, we are very clear on the need for organisations to deliver on promises, customer service and recognising us as individuals."

Antony Jones, CEO, The Logic Group

“The traditional models of engendering loyalty are changing with the economic climate, even in sectors where the barriers to switching brands are significant. As consumers, we are very clear on the need for organisations to deliver on promises, customer service and recognising us as individuals,” says Antony Jones, CEO of The Logic Group. “As the recession bites, it is evident that businesses have a very clear brief: focus on improving the customer experience and building loyalty through schemes that deliver rewards that are actually valued by customers.”

Where customer loyalty seems to lie the most, according to the research, is with supermarkets and - maybe surprisingly given some of the recent negative publicity towards them - banks and building societies, with 72% of consumers saying they feel loyal to at least one organisation operating in this sector. But the report also questions whether this might be due to ingrained habits, rather than consumers having any sort of deeper attachment.

And that’s not to say there isn’t room for improvement either. Currently, almost half of the UK population (46%) say they do not take part in a customer loyalty programme of any sort. Of the customers who have chosen to participate, just 24% who have opted for business benefits in the retail sector say they are ‘very satisfied’ with their scheme. This drops even further to a disappointing 13% in financial services.

Customer demographics and age profiles also have an important part to play in all of this. The research showed that the younger generation are proving the hardest to impress when it comes to customer loyalty, with just 28% of 15-24-year-olds claiming to be members of a loyalty scheme and a large majority saying that they see little value in the programmes currently on offer.

“In a business environment where the focus has shifted sharply onto the retention of customers, it is striking that so many of us don’t feel part of loyalty schemes and those of us that are members don’t necessarily value them,” says Simon Atkinson, managing director of loyalty at Ipsos MORI. “Current programmes urgently need to be reviewed and refocused if businesses are to successfully create true loyalty amongst today’s consumers.”

What is loyalty?

But what does loyalty actually mean? To the consumers that were polled, it isn’t necessarily about specific tangibles such as schemes offering points that they can use to purchase other goods or even about money off. What came out top for 34% of those asked what would encourage them to spend more in the shopping and retail sector was good customer service, even within loyalty programmes.

This was followed by rewards that were relevant to the individual (30%). But both of these were prioritised significantly higher than being offered rewards that provide money off, which was important to just 25% of consumers, and only 16% of people were concerned about being offered periodic vouchers.

"In a business environment where the focus has shifted sharply onto the retention of customers, it is striking that so many of us don’t feel part of loyalty schemes and those of us that are members don’t necessarily value them."

Simon Atkinson, managing director of loyalty, Ipsos MORI

The company which came out top in the retail sector when it comes to delivering excellent service to their customers was supermarket giant Tesco, which recently announced historic profits of £3bn earlier this month, ringing up a mammoth £1bn in sales per week. Delving deeper, when asked what constitutes good customer service, providing the service promised, honesty, taking responsibility when things go wrong and friendly staff ranked highest

To prove the point that good customer service really does matter, in contrast, a higher number of consumers (44%) surveyed said that poor customer service was the feature that would be the most likely to put them off increasing their spend as members of a loyalty programmes. In addition, 28% said unachievable rewards would have the same effect, as well as an unrealistic expiry date on the points they had gathered (20%). And if firms are thinking about vocalising the benefits of their loyalty scheme as much as they can, they may be interested to know that 18% of those surveyed said too much communication was a real turn-off.

“Despite current beliefs that consumers will switch their business to value brands or price offers, opportunities for organisations to build successful loyalty with consumers still remain,” says Jones. “A clear imperative has been identified in linking customer experience and service with loyalty programmes that are relevant to an organisation’s consumers. The time has come for businesses to be loyal to their customers, rather than expect it to be the other way around.”

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