Loyalty Rules

Many clients share with me traffic numbers they deem “healthy.” More often than not, I agree. Although their traffic is on par with business expectations, they want more. Today, “loyalty” is one of the most sought after and coveted online goals.

Consumers are spending more time online, and the number of new users is up. Still, there’s a lot of clutter out there. Competition is a click away. Would your clients spend more money to attract a new customer or a repeat customer?

Any way you look at it, user loyalty is priceless. Loyalty is a hot topic within many categories. Let’s look at retail. Retailers struggle to deepen relationships with existing customers to fatten their wallets. In a recent newsletter, McKinsey wrote about research on the price of loyalty to retailers. Do they get their money’s worth? No straightforward answer was determined. Standalone (programs without corporate partners) and joint loyalty programs are both costly.

Top-line findings indicate loyalty programs can:

  • Enhance value proposition

  • Capture valuable data
  • Draw higher-profit customers
  • Persuade customers to spend more

As the retail market remains sluggish, this sector must keep a watchful eye on time and money spent on such strategies.

McKinsey finds many loyalty programs struggling with the following issues:

  • They’re expensive. U.S. and European retailers tied up about $1.2 billion in annual discounts to customers.

  • Programs with rebates below 1 percent can be costly — into the low millions.
  • Loyalty programs assume a life of their own once started. Watch consumer mindset as the program develops.

Profitability? Mixed. Slow economic growth and dipping consumer confidence are factors. E-tailers regarding loyalty as profitable include Amazon.com in the U.S. and Tesco.com in the U.K. Amazon excepted, most winning e-tailers are trusted offline retail brands. They represent products with well-defined characteristics and well-defined requirements.

Additionally, demographics of e-tail customers are showing signs of convergence with the demographics of store-based retail customers.

The most popular product categories sold by online retailers are travel, computer, and entertainment/culture-related products and services, such as airplane tickets, computer games, books, and CDs.

Customers want to find products easily and quickly. There are still security concerns surrounding online personal and credit card information. However, as countries become adept at e-tailing, the concerns are diminishing. And, the Internet’s inability to provide tactile qualities remains an issue. Consumers want to be able to see, feel, and touch certain products. Fulfillment continues to be the most critical barrier on the list. The industry learned the hard way after fulfillment lag times in past holiday seasons. Many purchased gifts online with the promise of preholiday delivery. Several e-tailers blew it. Big time. Bear this in mind when developing new programs.

The upside is more potential online customers worldwide than ever before. As technology developed at an unprecedented pace, the Internet population rose 6 percent last year. The number of people with Web access exceeds 500 million. Broadband and mobile developments will increase e-tail’s potential.

According to Loyalty4Profit‘s “E-Loyalty 2001/02 in the Americas: United States” study: More households (18.7 million) shopped online during the holiday season than ever before, as 51.3 million unique visitors went to shopping sites in the U.S. during December, up 50 percent compared to the same period in 2000, and up 95 percent compared to 1999.

About half (49 percent) of the total Internet users in the U.S. shopped online during 2001, with most purchases being made by 35 percent of U.S. Internet users, though 84 percent have made at least one online purchase in the time they have been connected to the Internet. Figures suggest that online shopping at work accounted for almost half of all e-tailing during the 2001 holiday period….

Significantly, for the first time, more women (58 percent) than men shopped on the Internet, as the demographics of online e-tail customers continue to shift toward the demographic mix of store-based retail customers. It is, therefore, also likely that the over 50s [age group] will provide a significant market for future growth.

Werner Reinartz said it perfectly in the Harvard Business Review: “Not all loyal customers are profitable, and not all profitable customers are loyal.”

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