Crisis management using Loyalty Programs

The commercial benefits of loyal customers are well known by brand managers. The cost of acquiring a new customer is six times more then retaining an old customer, therefore ensuring loyal customers is commercially important. Loyal customers are also important because they provide the consistency of volume critical for stocking and managing just in time inventory to maintain the consistency of customer demand during crisis which is required to run any retail business. These are also the customers who are strong advocates for the brand and are always willing to forgive an occasional lapse. All of these are compelling reasons that retailers are on a quest for the customer loyalty and are increasingly looking at implementing loyalty programs or loyalty cards of some form.

Retailers are looking toward loyalty programs to reward loyal customers and to retain the loyalty of customers. However, there are a lot of issues that need to be considered while deciding on how to implement a loyalty program and the nature of the program best suited for different markets. Loyalty programs need to be examined on how they entice the customer, and what benefits they bring the retailers in of image, competitive edge and growth of customer base.
  
Loyalty program works best only when a customer is emotional attached to the brand. Brands thrive on emotional bond with the customer. The logic of giving rewarding loyal customers is indisputable. However positioning the Loyalty program is very critical so that these benefits do not appear to be a just discount passed on under the garb of loyalty this greatly effect the customer retailer relationship greatly reducing the program to a pure commercial transaction where the customer is constantly look for deals. This incentives the customer decision to be logical rather then emotional.

A loyalty program should have a long enough timeframe to ensure its success. When you launch a loyalty program, it is making a statement to its customers that the relationship is valuable. Before terminating a loyalty program, it may be a good idea to estimate what is required to keep the program going. Pulling back can be seen as the brand telling its customers, “Nah, you’re not as important as we thought.” Or even worse: “Hey we didn’t make enough money out of this so we’re ditching you.”

A good loyalty program can add or emphasize on the relationship during times of crisis. For example many times when a new brand is launched it launch’s a price war on the competing brands. A retailer buys bread at 10 Rs and sells it at 12 Rs, another retailer launch’s his store and he starts selling bread at 8 Rs  if the old retailer also retaliates by cutting his price to less the 8 Rs it is a sure way to go bankrupt, instead using the loyalty programs data you could offer this discount only to your best customers therefore emphasizing on the bond you have built and not losing him to a new retailer on the block.

Loyalty programs strengths and weakness are revealed during tricky situations. Most loyalty programs that are successful have a successful data mining policy. Ideally retailers should have the capabilities to use the loyalty data during crisis without witch a loyalty program does not have much chance of success. During hard times being stingy and trying to save money by letting points lapse or not allowing the customer to redeem his privileges reflects a poor attitude toward customers especially when loyalty is the idea behind the program.