Wednesday
26Dec2007
Companies Creating "Loyal" Customers with Low Prices
Wednesday, December 26, 2007 at 11:30AM For the company, a customer loyalty program strives to retain existing customers and increase the profits they bring with repeat purchases. The customer wants to save money by purchasing from the same company over and over again.
At least that is the primary and growing customer motivation according to a 2007 research study conducted by Forrester Research.
In the report entitled “Building Lasting Customer Loyalty,” Lisa Bradner writes:
“Fifty percent of consumers say that price is more important to them than brand. Retail customers asked to cite why they are loyal to their chosen retailer put price ahead of all other metrics.”
The research indicates that this customer behavior means that they endorse private label products across many categories because they are cheaper than national brands. National brands must work harder to build sufficient trust to counter this movement.
In other words, brands no longer automatically own quality. Product parity reinforces the customer’s attention away from quality concerns to price.
If you’re like me, you have noticed continuing improvement in private label products putting further pressure on brands in virtually all product lines.
My interpretation of this Forrester report: customers sign up for loyalty programs primarily for lower prices.
So for those companies wanting loyal customers, understand that these customers are trained or naturally inclined to want a share of the profits you get from them for themselves. In the end, the plan requires that both the customer and the company win. The prize? Why money, of course.
But are these truly loyal customers?
We know that competing on price alone has no future. Or does it? Does this mean the eventual death of the brand? What advice do you have for companies as they face this new, sophisticated buyer? How can a company differentiate itself in the face of this reality? How do companies engender true loyalty instead of focusing primarily on price? Is that even possible in today's market place?
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Reader Comments (4)
There's (at least) one problem with the Forrester statistic, Ted: It's a market research question. It captures respondents' self-perception, and not their actual behavior -- which may be totally different.
Many people want to believe that they make rational, well-considered decisions based on facts and not emotional whims.
If the stat that Forrester cites reflected behavior, then Flagstar Bank and Amegy Bank of Texas would have the largest share of saving accounts in Boston. After all, Bankrate.com says that those two banks have the best rates in Boston.
That said, the primary reason that Forrester finds for people enrolling in loyalty programs is supported by a number of studies.
What it tells me is that loyalty programs are helpful in building "economic" loyalty. But not necessarily "emotional" loyalty. The second type creates a much stronger bond.
Thanks for your comment Ron.
I agree that the problem with primary research is that it reflects what people say rather than what they do. As direct marketers, our tests show behavior often contradicts what people say they would do in a given scenario.
As for the bank example, I think that the category is fraught with buyer confusion and evaluation fatigue. And the price differences are either too small to concern many customers or too confusing to figure out. The same could be said of utility (in certain states like TX) and cell phone offers. These industries have evolved into pure commodities where the price differentiation has sunk into product parity. That said, I concede to your expertise in the banking industry.
I do see your point that people make emotional and impulsive decisions on many purchases. But I also think people make rational decisions for repeat purchase decisions. The Walmart success story demonstrates what happens when you offer both branded products plus lowest prices.
As you suggest though, I fear that most loyalty programs by design promote economic loyalty rather than true loyalty based on emotional commitment. The reason --- emotions are fluid and complex by nature. And promoting emotional commitment requires much greater skill to create than economic loyalty.
Ted, you pose a great question--how do we achieve customer loyalty in the face of increasingly aware consumers who are looking for the best deal. Here's one way--make your product/service so darned unique that the customer absolutely can't live without it (think i-Phone). Or, create a buzz around your product--this works especially well with kids and teens. Another idea: create some sort of stickiness (like the wireless providers used to have before you could take your cell phone number to a competitor). In financial services, try to get as many relationships as possible, and incent the customer to maintain those multiple relationships. Trust me, it's hard to leave a bank when they manage most of your financial life (from checking, to credit cards, to mortgage, to investments--you get the picture).
In the end, you're absolutely right--price will always be an issue and we need to realize it, but always strive to be creative and hope to make is a lesser issue.
Good points Suzanne!
But this type of marketing defines CRM and is something many companies do not typically do well.
Why?
One reason is that larger companies in particular are organized by product line with accountabilities related not to customer engagement, but product purchase. So coordinating cross-selling opportunities remains elusive.
Companies need to reorganize their infrastructures to enable customer maximization.
In other words, the entire organization must begin to think about becoming customer-centric first before attempting the CRM strategy. CRM is not a marketing strategy, it is a business strategy that starts at the highest level in the company. In fact, for many, it means a dramatic culture change.