MANAGEMENT DEVELOPMENT INSTITUTE - GURGAON

Post Graduate Program in Management (PGPM-PT): April 2011 Batch Term: IX (Apr-Jun, 2013)

Customer Relationship Management

Individual Project

Customer Loyalty

Submitted By: Deepak Dutt Sharma Roll no. 11PT1-024

Development of loyalty programs

Visible and dynamic development of loyalty programs reflects the increasing prevalence of relationship marketing philosophy in current business practice. Following trends can be seen:

Observed increasing competitiveness of various markets Increasing market awareness demonstrated by customers and escalating customers expectation. Decreasing homogeneity of existing customer groups.

Dynamic increase in the numbers of customers that willingly participate in various loyalty programs clearly suggests that such programs in the recent years have been steadily developing and have been widely accepted in the global marketplace. Between 2000 and 2006 the number of North American customers that participated in various loyalty programs increased by 35,5% and reached unprecedented 1,5 billion Moreover, increasing popularity of loyalty programs resulted in common acceptance of a thesis, which states that the implementation of loyalty program by a modern business enterprise is not motivated by the enterprises drive to strengthen and develop relationships Current loyalty programs are largely based on Advantage Program me, the first fully functional loyalty scheme implemented by American Airlines in 1981. In this initiative, American Airlines customers were invited to collect virtual air miles, which later could be redeemed for free flights. Currently loyalty programs are mostly implemented by companies from global economy sectors. It is estimated that in the worlds most developed markets, more than half adult population is enrolled in at least one loyalty program

The development of loyalty programs they apply to the following Marketing clubs, loyalty cards, Reward loyalty programs, Participation programs

Increasing popularity of loyalty programs can be explained by observed changes in todays marketplace, where the customer enjoys unprecedented freedom to choose from a wide variety

of suppliers of seemingly homogenous goods. Such market is characterized by a large number of competitors offering marginally different goods and fighting for the attention of similar customers. Described market circumstances place previously underappreciated consumer in a new, privileged position and create a set of previously unidentified challenges for any business striving to develop and strengthen relationships with its most valued buyers. Based on presented arguments it can be said, that todays customers relatively seldom declare their willingness to form lasting relationships with any goods and services provider who fails to present them with a host of attractive incentives. Such conclusion may explain why loyalty programs, have currently been viewed as a key marketing tool, which promotes and drives customer relationship building. Moreover, while implementation of loyalty programs inevitably generates certain amount of costs, ultimately it should lead to increased turnover and strengthened profitability of a business enterprise. Well - devised and properly operated loyalty program is one of the main competitors factors that may differentiate a company from its direct competitors. Developments in information technology facilitates the management of loyalty programs, implementation of which leads to the maintenance of existing customers and acquire new, changing their purchasing preferences and to increase sales. The software makes it easy to carry out marketing activities in the following areas:

Definition of loyalty programs - Setting the rules for their activities, methods to reach customers and to participate in the program Transactions loyalty - The award credits calculation or rebates based on purchases made or enforcement actions by the customer bonus, to collect marketing information about customers' habits the ability to track customer response to the action undertaken, marketing and management actions to carry out their analysis - the possibility of defining marketing campaigns and run them directly through the results, creation of a sustainable relationship with customers using the contact center and customer portal as a form of maintaining communication with the customer, marketing strategy - including a loyalty program to the overall strategy for the company

Loyalty Programs Effectiveness

EXTERNAL FACTORS:

Marketing actions

INTERNAL FACTORS: Psychological e.g. motivation: - subjective freedom of choice,

- economic - demographic

- social - cultural

CUSTOMER LOYALTY

- drive to stand out, - expectation to purchase products/services

- at best possible price, - compulsory purchase. Economic e.g. disposable income Factors of customer loyalty

Moreover, a robust loyalty programs usually weakens customers drive to switch goods and services provider, and therefore increases companys competitive advantage over its closest market rivals. In conclusion, to presented deliberations on the nature of current, dynamic development of loyalty programs, it must be stressed that any implemented, they should lead to increased volume of business as well as other, unquantifiable benefits, which viewed and analysed together will form the very basis for the assessment of loyalty program efficiency.

From viewpoint of Praxeology, customer loyalty can be defined as a constant and positive attitude towards an object (i.e. brand or business enterprise). Marketing definition of loyalty traditionally covered two aspects of the phenomenon: behavioural aspect and attitudinal aspect. Behavioural loyalty explained customers actions, which included repeat purchases, their proneness to be attracted by competitors marketing efforts as well as their willingness to engage

in word of mouth marketing.

Without a doubt, the classic approach to customer loyalty ignored factors affecting the attitudes and behaviour and does not include themes of loyalty. Taking into account categories such as income or lack of alter-natives to choose from, we can say that the nature of economic factors determine the customer loyalty. If, however, will be included in the analysis of the determinants of market, demographic, or cultural, it reveals a broad context for consideration of the factors influencing and shaping the loyalty of companys customers.

One must question the validity of loyalty whenever displayed loyal behaviour (i.e. repeat purchase) stems from barriers imposed by the goods provider, such as any limitations included in business contract. Customers passive attitude caused by objective (e.g. transaction characteristics) as well as subjective (e.g. customers indifference) factors teamed up with their repeat purchases inevitably leads to a conclusion that such scenario may not be perceived as one exemplifying loyalty. So, it seems clear that in order to discuss loyalty we must take into account a certain degree of emotional engagement displayed by a customer.

On the one hand, such statement highlights the need to examine the levels of emotional engagement displayed by customers. On the other hand, voiced need to examine customers emotional engagement widens the scope of any discussion on loyalty as well as any marketing activity designed and implemented by a business enterprise. Any discussion on loyalty cannot fail to include careful examination of customer satisfaction levels, which are shaped by customers subjective evaluation of purchased product/service, received value, and overall interaction with a company. Everyone wants new customers But how many of them come back? How many of them stay? Common marketing lore states the cost to acquire a new customer is far more expensive than to keep an existing customer six or seven times more expensive. 7 Times Less Expensive To Keep A Customer Than To Acquire One

Here are four things you can do: 1. Make it personal In a nutshell, your customers want to feel special. Any effort to achieve that is often rewarded. This is one of the core reasons people return to shop at your business. Again, you may cry obvious but are you doing it? Are you finding ways to put that feeling of special into how you communicate and engage. Make your relationship with loyal customers a personal experience. 2. Treat your loyal customers differently Some people find this idea to be unfair, but not all customers are equal. Some spend more, some are loyal. Some are bargain shoppers. Too many companies that keep playing around with offering something different to their loyal customers. Being ambiguous internally translates to an ambiguous experience for your customers. Either treat them differently, or dont. Whichever you choose, act on that decision. 3. Make it formal: Start offering a loyalty program

Formal does not have to be elaborate or fancy; it just has to exist. As a customer, think about all the different ones you have signed up for .Effective loyalty programs dont have to be complex.

4. Give your one-time customers a reason to join NOW If you spend time thinking what makes your customers happy and then create a way to keep them aware of those perks via a community, you can stand apart from your competitors.

Personal Experience as Consumer with MyGrahak.com: I am a regular customer of Mygrahak.com. As per the loyalty programme after some loyalty points they keep on offering free gifts which are of good quality which makes you feel special and make you feel that your decision of choosing Mygrahak was right.

Even Complaint handling is quick, once I was not satisfied with the quality of food product without questions they replaced in a day time. I can list following points for my loyalty for MyGrhak Good Quality of products On time Delivery Free Gift on some points Replacement Policy

References: From MDI e-library: LOYALTY PROGRAMS EFFECTIVENESS Katarzyna SZCZEPASKA*, Patryk GAWRON(2011) Prioritizing the Effective Factors to Customers Satisfaction: International Journal of Business and Management Vol. 7, No. 2; January 2012

Article in press: http://www.forbes.com/sites/tjmccue/2013/02/04/warning-is-your-new-customer-comingback-4-steps-you-should-take-now/ http://www.forbes.com/sites/forbesleadershipforum/2012/01/06/the-key-to-customerloyalty-the-total-shopping-experience/