How to improve customer loyalty

In an economic downturn it is even more important to spend and use marketing budgets wisely.

By Andy Wood, managing director of GI Insight

With consumers tightening their purse strings and seeking cheap alternatives, one of the best ways for marketers to spend reduced budgets is on customer retention and development. In other words you should focus on your key customers – the 10 per cent giving you 50 pr cent of your turnover.

The discount end of the high street is where this strategy certainly pays off. With more and more people turning to value retailers, marketers will need to think about how to encourage shoppers to stay with them when the economy is looking up.

These new customers might very well return to their usual shops, so the key action for value retailers is to develop customer relationships in order to keep customers after the recession. You need a mechanism to help you understand who your new customers are and to encourage similar prospects to walk in the door.

If there is a loyalty scheme in operation new customers should be incentivised to sign up and provide information to help you create new customer profiles. Once identified, customers ‘clusters’ can be analysed.

There are two areas of analysis key to successful customer development and retention:

•    If new customers are already walking in the door the retailer can look at who they are, what they are like and where they are from. This will allow them to select ‘lookalikes’ for prospect campaigns to encourage even more people to make the transition from premium retailer to value retailer.

•    You can learn about the customer in order to develop strategies for retention once the downturn is over. This might be as simple as adding new product lines to the offering or creating incentive barriers to keep them interested.

At the other end of the scale, premium retailers are suffering from customer defection and unless you fundamentally change your pricing structure customers will continue to move away.

Last year Tesco introduced a range of discount brands aimed at discouraging shoppers from going to value alternatives such as Lidl and Aldi; in the run-up to Christmas M&S held two one-day sales, slashing prices in store by 20 per cent; meanwhile Waitrose recently started a direct mail drive to promote its latest in-store promotions.

Premium retailers should also be looking to identify, through point of sale analysis, which groups of customer are not dropping their spend. This can be used to drive campaigns to recruit similar kinds of shoppers in a bid to replace lost custom.

Stores should keep in touch with lapsed customers throughout this difficult period in a bid to draw them back again when consumer confidence returns. This is particularly important since value retailers will fight to keep them once the economy has recovered.

Finance directors and managers, traditionally opponents of loyalty investments, are increasingly giving loyalty schemes their full support.

Research we recently conducted found that four in every five finance directors in British firms believe that companies with a loyalty scheme will come out of the current economic downturn with ‘significant competitive advantage’ and see loyalty schemes as fundamental to corporate health, robust performance and competitive edge during an economic downturn.

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By LaunchLab.co.uk  on   May 26,2009

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Keywords

customer loyalty    customer retention    customers    loyalty    schemes   

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