Monday, November 7, 2011

The Challenge of Sustainable Customer Loyalty

The Challenge of Sustainable Customer Loyalty

A number of transformational changes are assaulting the marketplace and challenging traditional paradigms and strategies for achieving sustainable customer loyalty:

Shrinking Discretionary Spending: the lingering global recession and the rise in energy and related costs are stagnating per capita discretionary spending and eliminating the passive strategy of “a rising tide lifts all competitors”. The current and foreseeable future reality is that significant growth in most verticals MUST come at the expense of competitors losing clients or at least share of clients’ wallets.

Proliferation of Choices: consumers are being overwhelmed by the increase in the number of available products and services, distribution channels, financing instruments and coupons vying for their discretionary income.

Consumers Demand Personal Differentiation: consumers increasingly exhibit any semblance of sustainable loyalty only to those goods and services where they experience a direct fit with their personal values and preferences, where they “see themselves” through the prism of a companies’ offerings and interactions.

Loyalty Leads Loyalty Programs: consumers increasingly determine their loyalty to a company through the prism of personally experienced differentiation and  use loyalty programs as a reward for bonding decisions they have already made. For this reason most loyalty programs are designed to incentivize customers that are already loyal and do not have a strong track record of promoting loyalty switches. Most loyalty programs may increase frequency and/or volume of purchases – but do not switch core customer loyalty.

Loyalty Cannot Be Bought (for long): attempts to purchase consumer loyalty without explicit linkage to the personal value that gives birth to true consumer loyalty are frequently doomed to failure. An increasing slope of financial incentive and discount “heroin” may fuel short term purchases but results in easy switching when the financial incentive is withdrawn, and little or no sustainability of future purchases.

Lack of Differentiated Offerings: Starbucks versus CVS: just reflect on the difference between Starbucks and CVS brand image. Starbucks’ offering and experience say something positive about the customer as a differentiated PERSON and re-enforce positive self image.CVS sells items that are available from every drugstore let alone most other general merchandise stores.

These external challenges are exacerbated by many customer loyalty programs being strategically disconnected from core marketing and sales activities, with limited dynamic synergy or interaction.

In light of these Tsunami marketplace upheavals there is a need for a new customer loyalty paradigm  - a means to use customer loyalty programs as a leading and not a lagging strategy and to develop approaches that provide on-going customer loyalty without as heavy reliance upon the heroin of financial incentives and discounts.

In our next blog we will outline a strategic approach to help companies optimize their loyalty strategies and programs.

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