To: Mr. Rob Felix, Vice President
From: Your name, Marketing Executive
Date: November 17, 2017
Subject: Effective Customer Loyalty Program
Please find attached the detailed proposal that we discussed for making our customer loyalty program more effective. The detailed report is including the analysis of the existing program, the shortcomings, why it needs to be redesigned and the recommendation for the changes required in the existing program. The analysis is based on the outcome of primary information and survey done with the customers at London Drugs as well as the research papers published in this area.
My research concludes that a well communicated customer loyalty program, easy to understand as well as a program that may offer quick benefits to the customers can bring the maximum benefits of customer loyalty program to an organization.
Considering that a loyalty program has several inbuilt costs for the organization, it is highlighted that the several benefits that an effective customer loyalty program may bring to the organization can overcome all such costs and ultimately will bring not only the benefits beyond cost but also several intangible benefits such as brand creation.
Recommendations are pointed out at the end of the report with detailed implementation guideline. I am thankful to the customers and the shop managers who cooperated me during my research exercise. I am also thankful for all the researchers who provided their research and made it available on the internet.
I welcome all your feedback as well as the clarification that you seek. It would be my pleasure to answer all your queries assuming that the changes will bring various benefits to the organization.
Picture- 1: Customer loyalty program : value to customers
Picture- 2: Customer loyalty program advantage
The purpose of this document is to evaluate the existing customer loyalty program that London Drugs have. The evaluation is done based on the criteria that how far the existing loyalty program is meeting its objective. In the second part of the document, it is analyzed that how this program can be changed and made more effective. The last part of the document has the recommendations for implementations.
Direct feedback from 100 customers are used in the research apart from several scholarly articles and published researches.
There are several researches showing that most of the royalty program does not bring real value to the organization and in other words, the basic purpose of the program as to bring more footsteps is defeated. All the customers today have several loyalty membership with various organizations however the research articles and the personal interviews with the customers reveal that hardly a few of these loyalty membership are encouraging them to visit the same shop for their requirements.
Making the loyalty program robust in terms of its simplicity and the visible beneficial for the customers is always appreciated and liked by the customers at large. Proper communication of the program and quick benefits are other important factors helping such programs to be successful.
A loyalty program that can really add value to customers should be effective, should have relevant offers, customers owning the program finds himself or herself recognized, should be properly communicated, should offer immediate benefits which make the customer happy and satisfied.
Picture-1 Customer loyalty program – Value to Customers
The research of this paper has several findings which will help the management to modify our program so as it help London Drugs the best and achieve its objectives.
The following recommendations are the results of the research: –
- Simple and understandable program: – The loyalty program must be simple and easily understandable.
- Communication: – the program must be communicated effectively to the customers.
- Tier program: – The program may have tiers which encourage the customers to make more purchases to have improved tier.
- Quick benefits: – The customers should get the benefit of the program rather quickly than waiting for a long period.
- Visible benefits: – The benefits of the loyalty program should be visible for the customer and they may find it real value addition for them.
Various articles available on loyalty program and the first hand interviews of the customers show that there are ample scope for improvement possible in the existing program. The loyalty programs are not successful if it does not serve the purpose of motivating the customers to go to the same shop again and again. Further, the same loyalty program may not be successful for an airline which may have helped a hotel and so the customization of program is equally important. The loyalty program may also be seen from the business perspective and it should not make a hole in the company budget however a cost benefit analysis is very important as an increase in cost, if results in higher sales, may bring a range of synergies to the business such as better market share, brand creation, economy of scale in production, better bargaining possibilities in procurement and so on.
Kelly (2016), states that a supermarket customer prefers to have quicker benefits and so, if the points earned on card can be converted into cash benefit within a small period of time, it will help in making the loyalty program great.
It is also found with the interviews of the customers that the program should be very simple and intangible offered benefits such as computer virus check and health consultation are not encouraging customers. Further, the benefits not linked with the amount of shopping does not appeal customers to do more and more shopping from London Drugs. The company also offers free gifts and a lucky draw of $2,500 which are given to a very few customers, this is again not helping customers to rely on the loyalty program of the company (“loyalty benefits”, 2017). If the customers are sure to gain benefits being the loyal customer of London Drugs, they will buy more and more of their requirements from here.
Making the program simple is not challenging. The customer group of London Drugs is not specified based on income group and thus a program which is suitable for everyone should be considered by the company for implementation. A simple program will further make the communication effective and enables the customers to understand their benefits easily.
A tiered program is advocated by many research scholars and it is also found that when customers find greater benefits based on their higher value procurement, they prefer to buy all possible requirements from the same shop. The tiered program will help the customer to shift from a lower level loyal customer to higher level loyal customer based on their aggregate procurement in specified period of time. Further for continue being in the same group, the customers should meet the shopping target (Thomsen, 2017).
There is no doubt that the customers must be aware of such programs and it should be very well communicated to the customers. A small initial advertisement budget will boost the program. The customers must be aware of what the program is, which tier he or she currently belongs to and what benefit they will get. A possible communication of point and the associated benefits to the customer may be communicated through mail or SMS will be of great help.
There is a possibility that the company may find this as an extra burden however in the long run, the company will have several benefits coming through this program. An increase in sale is usually treated as a source of extra profit. However the argument may be that the increase of sale will come on extra cost burden in the form of loyalty program expenses, but the benefits that will flow to the company are enormous and detailed in the section headed as benefits of the program.
The company already has a loyalty program as LDExtras which needs to be modified for bringing better benefits to the company. The very first strategy that the company needs to implement is to make it simple program where the points earned on every purchase will be converted into cash. The ceiling of conversions of points may be a specific number such as 100 which can be converted in $1 benefit. The customer may earn 1 point on every dollar spent during normal time and can earn one point on every dollar two expense during promotion.
The second strategy is to have the tiers which will come as a result of having a specified number of points in a year. There may be two tiers such as gold member and premium member. The customer when joins may be recognized as silver member and if he / she customer earns 10,000 points in a year, he / she qualifies for gold membership and the qualifying criteria for the premium level may be to earn 20,000 points in a year. The customer may get an additional benefit of being gold member to earn 1.25 points on every dollar spent and may earn 1.50 points on every dollar spent as premium member.
The third and most important issue is the proper communication of the program to the customer. An effective communication can encourage more and more customers to be members and enjoy the benefits of membership (Bernazzani, 2017). Advertisement will help the company in adding newer customer however for improving the footsteps of the existing customer and encouraging them to make more and more purchases, they must have a clear understanding of the program. The customer may get e-communication through SMS or through e-mail. The shops should have enough boards for customer to understand the program. The sales team at the shop and the casier at the shop should also make sure that the customers know the program properly.
The following benefits are expected from the suggested program: –
- The increase in sales will result in increase in economies of scale in its production.
- The company will have better negotiation powers in procurement and will reduce the company procurement costs.
- The larger sales will help the company in creation of stronger brand image and retention of customers.
- It will improve the customer satisfaction level.
- The loyal customers will help the company in having a sustainable business model.
Picture-2 Customer loyalty program advantage
We have conducted several interviews of the customers at the shop with a set of questions that include about their awareness of the program, the benefits that they may enjoy, about their willingness in joining the program and the improvements that they want in the program.
Based on our interviews with 98 customers, we observed that most of the customers are not aware of the program. They are asked by the cashier about their telephone number but they don’t know the reason behind the same. This was the feedback from 60% of the customers. It was very clear from this feedback that if they don’t know the reason behind when their mobile number is asked while payment, they are not aware of the program itself.
The second questions asked from those who are aware of the program about the benefits that they derive from it. Out of 40% who are aware of the program, only 50% know about the benefits that they may enjoy out of the program. This gives a sense that there is an urgent need of creation of awareness of the program.
The third question was asked to them who are not yet members, we observe that they want to join the program but when they were informed about the structure of the program, they did not find it appealing as the benefits of the existing program are not very encouraging. However as it does not cost anything to join and they may gain some benefits, those who are not the members, show their willingness.
When asked about how they want the structure of the program, most of them have the same replies that the program should offer them better discounts and treat them specially. They also found that if the program can offer quicker benefits, they will be happier.
Based on all the primary findings from the customers on the shop and the various articles published along with the experienced shared by other loyalty offering super markets, we conclude as below: –
- The customers join the loyalty program for the want of discounts and other benefits.
- The customers prefer quicker benefits.
- Most of the loyalty programs are unsuccessful and their purposes are defeated.
- The customers prefer a simple and understandable loyalty programs.
- The company does not have a very appealing loyalty program.
After understanding the current loyalty program, analyzing it in detail, comparing it with other loyalty programs and customer interviews; I propose the following recommendations to the company: –
- The change in the loyalty program is a must to make it successful.
- The loyalty program should offer the customer visible and countable benefits.
- The existing members should be made well aware of the changes in programs.
- The prospective members should be encouraged through creation of awareness about the program benefits.
- The customer should get 1 point for every dollar spent and once they have 100 pooints, it can allow them to convert into $1 benefit.
- The customer may get lower points when they purchase the products on promotion, it may be 1 point for every $2 spent on items on promotion.
- The loyal customers may have potential to derive higher benefits if they make more purchases as once they complete 10,000 points in a year; they will be elevated to gold class loyal member and on completion of 20,000 points in a year, they will become premium members.
- A gold member may get 1.25 points on every dollar spent and a premium member may earn 1.50 points on every dollar spent.
- The information about the points, redemption of the points and possible benefits of the points should always be made available to the customers.
Bernazzani, S 2017, Customer loyalty: the ultimate guide, retrieved from https://blog.hubspot.com/customer-success/customer-loyalty
Chou, Y 2017, 4 ways to build and optimize a customer loyalty program, retrieved from http://yukaichou.com/loyalty/optimize-loyalty-programs/
Kelly, L 2017, How to create a killer customer loyalty program, retrieved from http://www.cpcstrategy.com/blog/2016/12/customer-loyalty-program/
Loyalty benefits, 2017, retrieved from https://www.ldextras.com
Thomeson, R 2017, Customer loyalty programs, retrieved from https://sleeknote.com/blog/customer-loyalty-programs