Satisfaction = Perception - Expectation
3) Exceeding Customer Expectation - Acceptable and Exceptional Service
2.2.2. Customer Loyalty Programmes
What is a customer loyalty programme?
The basic idea behind a customer loyalty programme is to gain a bigger share of customer spending by rewarding individuals for shopping at a particular store or group of stores. The more money that a customer spends, the greater the rewards.
Sometimes rewards come in the form of discounts on products in the store. Other loyalty programs allow members to accumulate rewards ‘points’, which they can then redeem for a variety of ‘free’ goods or services (Worthington and Fear, 2009).
Successful tourism and hospitality businesses have found that loyalty programmes are very important in capitalizing on existing customers and bring in new customers while stimulating revenue growth. Many businesses have started to develop programmes and strategies to create customer loyalty, for example airlines offer
“frequent flyer” programmes.
Loyalty programmes yield benefits both to the business as well as consumers (Stone and Crick, 2004).
Benefits to the business:
·
Loyal customers cost less to retain – it costs a business about 5-10 times more to acquire a new customer than it does to sell to an existing one·
Loyal customers will recommend the services they frequent to 12 persons on average·
Loyal customers are more likely to reflect their comments to the business management·
Loyal customers spend more - they pay little attention to prices, and they are willing to pay higher prices for quality products and services.According to research, existing customers spend 67% more than a new
Figure 2.5: Airline’s frequent-flyer programme
·
Loyalty fosters a deeper emotional connection between the customer and business·
The average costs of loyalty programs is 0.5 - 1% of sales and customer databases have allowed businesses to collect, store, and monitor customer activities. This allows businesses to understand and recognise individual customers and what they are interested in buying.Benefits to the customer:
·
Customer is psychologically reassure when dealing with the same firm. In other words, customer has established trust towards the quality of the products or service offered by the firm.·
Customer also gets a feeling of being a smart shopper·
Customer gets something for nothing (free) economic benefits are accrued by staying loyal·
Customer receives high value for the services and products·
Customer receives respect from the firm under the tier system. In other words, customer who spends more on the firm’s products or services is rewarded with a higher tier status.In short, a good customer loyalty program should build business and enhance profitability while simultaneously rewarding a firm’s most profitable customers.
Types of customer loyalty programmes:
Generally, there are three types of customer loyalty programmes commonly used by tourism and hospitality businesses (David Robinson, 2011). They are:
1. Simple Points System 2. Tier System
3. Partnership System 1. Simple Points System
This is the most common loyalty programme. Repeat customers earn points, which translate into some type of rewards. Whether it’s a discount, a freebie, or special customer treatment, customers work toward a certain amount of points to redeem their reward. This type of loyalty programme is most appropriate for businesses that encourage frequent but short-term purchases (David Robinson, 2011).
Example 1(a) shows a local coffee shop offers a free drink to its customers when a customer has collected 10 points.
Example 1(b) shows a local casual dining restaurant offers a buy 5 get 1 free loyalty programme in rewarding its customers.
2. Tier System
Offers a small reward to initiate the loyalty programme, but encourage repeat customers by increasing the value of the rewards as the customer moves up the loyalty ladder. The key is to offer benefits in the early stages to hook the customer into coming back. Once they do, they’ll realize that “next” tier isn’t unattainable, and offers really good benefits. It also helps solve the problem of customers forgetting about their points and never redeeming them. Example 3 shows a local airline’s tier system. This system offers its customers with four different tiers.
Example 1(a): Simple Points System – buy n and get 1 free
Example 1(b): Simple Points System – buy n and get 1 free
Example 3 – a tier system of a local airline’s loyalty programme
The difference between simple points system and tiered systems is that customers extract short-term (points system) versus long-term (tier system) value from the loyalty programme. You may find tiered programmes work better for high commitment and higher price businesses like airlines and hotels.
3. Partnership system
This type of loyalty programme is very common in the tourism and hospitality business. Many businesses form partnerships with non-competing firms to facilitate the task of accumulating points and to increase the variety of reward options (Ferguson and Hlavinka 2009). Example 4 shows members’ reward options are interchangeable with the reward programmes of both banks’ credit cards and airlines’
frequent-flyer. In addition, partnership system can be extremely effective for customer retention and company growth. In this example, airlines’ frequent-flyer members and credit cards’ members are likely to continue flying with the airlines and making purchases with the credit cards in order to accumulate points and receive the rewards.
Technological advances:
Loyalty programmes should take advantage of technological advances. The days of the paper loyalty cards are quickly vanishing. Advancements in loyalty management technology such as bar code, magnetic strip and RFID have facilitated the development of more sophisticated loyalty management in recording points and rewarding customers (Shugan 2004). Instead of using paper-cards shown in Example 1, card with advanced technology such as RFID (Octopus card) in Figure 2.6(a); magnetic strip in Figure 2.6(b); and bar code in Figure 2.6(c). These technological improvements should increase customer satisfaction with the loyalty programme. Customers no need to renew their paper cards regularly because of damage or misplace; reward programme’s balance can be easily checked and updated. While also reducing operating costs because less printing is done, reward coupons can be stored digitally, and special promotions can be notified to customers by emails (Cornell Hospitality Report, June 2010).
Today, advancements in loyalty management technology are developed beyond card-based format. The latest technology used in mobile phone is called mobile bar code in Figure 2.6(d). A mobile bar code is an electronic bar code that can be stored on a mobile phone. Mobile bar codes can be used to create virtual loyalty cards, gift cards and coupons that shoppers can carry right in their mobile phones — no more plastic credit card style cards and paper coupons to manage. Some of the benefits of using the mobile bar code technology are:
·
Very ‘green’: Loyalty programmes using mobile bar code do not generate any paper or plastic refuse, promoting a company’s environmentally friendly image.·
Very low cost: Mobile bar code initiatives cost are relatively low, there is no need to print, mail or issue physical plastic cards, paper-based cards and coupons.·
Increased brand awareness: A business gets the most direct channel possible to promote the brand to the customers straight to their personal mobile phone.Mobile phone is already playing an increasingly important role in customer loyalty
Figure 2.6(b): Points System – cash reward (Magnetic strip) Figure 2.6(a):
Points System – cash reward (RFID technology)
Figure 2.6(c) : Points System – cash reward (Bar code technology)
References:
David Robinson, 2011, Customer Loyalty Programs: Best Practices, Haas School of Business, University of California, Berkeley.
Ferguson, Rick and Kelly Hlavinka (2009), “Colloquy Censustalk – The Big Sort:
The 2009 Collogquy Loyalty Marketing Census,” Colloquytalk, April.
Merlin Stone, David Bearman, Stephan A. Butscher, David Gilbert, Tess Moffett and Paul Crick,(2004)”The Effect of Retail Customer Loyalty Schemes-Detailed Measurement or Transformed Marketing?” Journal of Targeting, Measurement and Analysis for Marketing, Vol. 12,3,305-318.
Michael McCall, Clay Voorhees, and Roger Calantone (2010), “Building Customer Loyalty: Ten Principles for Designing an Effective Customer Reward Program”, Cornell Hospitality Report Vol. 10, No. 9, June.
Preeta, H. Vyas and Piyush, K. Sinha (2008), “Loyalty Programmes: Practices, Avenues and Challenges, December.
Shugan Steven, (2004),” The Impact of Advancing Technology on Marketing and Academic Research, ”Marketing Science,23(4) , 469-475.
Worthington, Steve., Fear. Josh. 2009. “The hidden side of loyalty card programs”, The Australian Centre for Retail Studies, December 2009.
Figure 2.6(d) : Points System – using Mobile bar code technology
2.3. Cultural Issues in the Provision of Customer Services