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Ginger Conlon | March 23, 2012

How Loyal Are Your Customers?

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Gaining and retaining customer loyalty is no easy feat. Customers are often "loyal" based more on convenience than emotion, which means given a better option their loyalties will change as quickly the weather on a Florida afternoon. Loyalty programs help bolster retention, but they're not a magic bullet for fostering attitudinal loyalty.

Earlier this week at Loyalty 360's Loyalty Expo 2012 several speakers shared research findings that reveal just how fickle consumers can be. They also shared challenges and opportunities in building and maintaining customer loyalty.

According to Forrester researcher Emily Murphy, on average, 35 percent of a company's customers are loyalty program members. Yet 63 percent of U.S. adults are interested or very interested in joining programs--provided that the programs offer discounts. "Discounts are king for both consumers and marketers," Murphy said. Consequently, the top challenge for companies that offer loyalty programs is differentiating their program from similar efforts in the marketplace, she said. Murphy recommends that businesses take the time to understand their customers' preferences. Doing so will help to better differentiate their loyalty program.

SAS Chief Researcher Pam Prentice noted that companies should be using loyalty programs to build brand evangelists who happily remain customers. "We don't want to turn customers into hostages with our loyalty programs," she said, adding that companies should increase their focus on retaining and growing their business from existing customers. Why? Research from SAS finds that 68 percent of new sales come from current customers.

A dedicated customer loyalty and retention function is one way to encourage those sales. In fact, 35 percent of companies with a dedicated loyalty function say their programs are "very effective" versus only 2 percent of company without a dedicated team, Prentice said. She also noted that 78 percent of companies surveyed have a dedicated loyalty function or plan to add one, and 50 percent of loyalty departments report to a marketing executive. And when it comes to program goals, increasing customer spend trumps building brand evangelists, 47 percent to 16 percent.

One way to improve the performance of a loyalty program, as well as marketing performance in general, is to integrate customer data, Prentice said. Currently, only 36 percent of companies integrate loyalty data with customer data, which is a missed opportunity. Company should use this data to better understand their customers, and reach out to the right customers at the right time with the most relevant offers and communications, she said.

Fortunately, according to Acxiom Chief Marketing and Strategy Officer Tim Suther, 58 percent of companies plan to increase their spending on customer retention. And they need to. Research from Acxiom finds that only 25 percent of customers feel very loyal to brands, and 25 percent feel no loyalty at all. (Read Suther's five recommendations for building customer loyalty.)

That increased spending, along with harnessing integrated customer data, could go a long way toward building loyalty and increasing retention. In fact, 62 percent of customers are more likely to do business with a company because of its loyalty program, and 47 percent of customers modify where they shop based on loyalty program membership, according to Rob Daniel, vice president, loyalty and research, Maritz Loyalty Marketing.

The challenge, Daniel said, is determining how many of your loyalty program members are truly engaged. "Only 6 percent of consumers have formally left a loyalty programs," he said.

Ultimately, whether through habit or engagement, loyalty programs work in building business from existing customers--often in a cost-effective way. Said Suther: "We all know that it costs less to retain customers than to acquire them."

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