Increasing `lifetime value' of customers
By Siddharth Reddy

Published in The HINDU Businessline

HOW many of you are members of Jet Privilege or First Citizens Club? Chances are that even if you are not a member in any of these, you would have definitely heard of them. Thanks to these and programmes such as the Inner Circle from Taj Hotels or Original Rewards from Hewlett-Packard, the Indian consumer is becoming increasingly aware of the concept of loyalty marketing.

Marriott International, whose loyalty programme has over 20 million members, the biggest in the world.

So what is a loyalty marketing programme?
Loyalty Marketing refers to the practice of identifying best customers and engaging them in a relationship through event-driven retention tactics over a period of time. The process involves a series of stages, depending upon the type of business, profile of customer and marketing tasks.

Apart from creating relationships, customer loyalty programmes have other advantages. They help companies identify their Most Valuable Customers (MVCs). Companies can track who spends the most and how frequently. Simply speaking, those who spend less may have greater loyalty to a competitor and therefore need to be converted. And the ones who spend a lot are the MVCs to whom the company needs to pay attention at all times.

Organisations such as Marriott, Starbucks and Dell were quick to realise this fact and have been the pioneers in segmenting their top customers. Moreover, more than 20 per cent of Marriott revenues come from `Marriott Rewards,' the world's biggest loyalty programme with over 20 million members.

The most common loyalty programme is where customers are rewarded for repeat purchases. Years ago, the grocery stores in US popularised this concept by giving green stamps for every purchase which could be later redeemed for certain gifts. The modern day equivalent is the frequent flyer programme, an example of which is AAdvantage, started by American Airlines nearly 20 years ago.

Loyalty programmes are also making their presence felt on the Internet, with many e-commerce and shopping Web sites offering discounts, reward points and privileges for frequent shoppers.

Its importance
Countless authors, statisticians, and marketing managers have hammered in the fact that it costs more to acquire a new customer than to retain an existing customer.

Loyalty programmes aim to increase the lifetime value of an existing customer and provide a strong `barrier of entry' for other competing products to bite into its customer's wallet. These programmes are the first step in gaining more information about customers so that companies can move them up in the all important value chain.

Last but not the least
The loyalty marketing industry is estimated to be $6 billion with over 2,250 loyalty programmes in the marketplace. Companies are tailoring loyalty programmes for a wide variety of segments and customer profiles. Apart from the end-user segment, loyalty marketing also operates extensively in the business-to-business segment.

Loyalty marketing allows companies to:
> Understand their customers better and know their needs.
> Determine or change buying patterns based on customer profile.

Allocate the most resources to the best customers instead of wasting it on all customers equally.

Author: Siddharth Reddy
(The writer is the Managing director of SurfGold (I) Pvt Ltd).