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14,5% of current population on Earth are members of different loyalty programs

According to the research conducted by the British Finaccord company in 2011, 14,5 percent of the world’s population - an estimated 650 million people - are participating in at least one loyalty program and these figures are constantly growing.

Significantly, the early phase of the crisis of 2007 does not resulted in a deceleration in the growth of the loyalty programs market. On the contrary, companies trying to compensate for the economic downturn are redoubling their efforts in order to acquire new customers and retain old ones.

As a result, customer relationships become the next competitive battleground. Aiming for the victory in this field, companies are implementing ‘unnatural’ loyalty programs unusual for their businesses as well as offering their customers new kinds of rewards for participating in loyalty programs. Facebook is distributing coupons, whereas Groupon offers its customers to collect points, the icon of customer-centric business, Ritz Carlton hotels, has issued its own loyalty card.

The loyalty program market structure itself is undergoing important changes. If three or four years ago experts were declaring anonymous discount’s dying off together with predicting the triumph of long-term points collection programs, it has become evident by now that intent attention of companies is again attracted by short-term tools easy to develop and quick to make an effect. Actually, a real ‘discount renaissance’ takes place not only in the USA and Europe but in Russia as well. Points collection systems like Groupon or such programs as “save and get” used by retail chains with a high rate of customer turnover (collect N number of stickers and get for it a toy, tableware with a label etc.) are apt examples of it.

It is said that all is fair in love and war, thus such ambiguous option of competition as offering privileges to competitors’ loyalty program cardholders is not surprising anymore. In USA hotel chain Best Western became notable for providing privileges to cardholders of “VIP”-cards issued by any company. In Russia this year we could observe a fierce competition in the premium class FMCG segment, when Globus Gourmet began to give discounts to the cardholders of Azbouka Vkusa or Perekryostok the Green started to exchange discount cards of Azbouka Vkusa for its own loyalty cards with pre-posted points.

One more mass trend is a focus on mobile technologies and social nets. Even today Starbucks’ customers in Canada can check their bonus account and use bonuses as a payment for drinks via mobile phone and mobile phone navigator Payback will advise its users on places where they can spend them. In Russia Perekryostok the Green was the first to introduce mobile identification for iPhone and iPod users.

Paraphrasing Bob Rosenblatt, the head of customer loyalty of Chase Card Services, we may say that “In the mad pursuit for customers companies are ready to promise them anything, anywhere, anytime, but in today’s saturated marketplace even that would not be enough."[1]

The spread of loyalty programs in Russia during the last two years has turned into a real boom. Almost each self-respecting shop or a chain has implemented its own loyalty program either of a discount or of a cumulative type. Survey via Internet undertaken among Russian women between 30-35 years old showed that an average Russian ‘middle-class’ household has not less than 40 loyalty cards issued by different shops and chains. According to the RBC-research, there are about a hundred of co-branded bank projects operating in the market, 45 percent of which are based on the bank credit cards (In 2011 appeared such co-branded projects as MTS-Russian Standard, Tinkoff-Classmates, UnicreditBank- S7 Airlines and so on).

The most part of Russian co-branded projects is aiming not at increasing customer loyalty; in essence it presents itself a result of companies’ rivalry for the market share of the bank cards market. Uniting with retail chain is a perfect way to offer credit cards to the customer database of a partner-retailer.

Re-launch of existing loyalty programs is still a popular measure in our market; examples of it are “Sela”, «Lukoil» and «île de beauté» companies. But not in all cases transformation brings with it positive dynamics. For example, during 2010-2011 Aeroflot company has toughened the terms of its loyalty program three times, whereas Rosneft abolished its fuel discounts.

So what kind of pitfalls can face companies, which has decided to fight for the customer loyalty?

First of all, launching of loyalty program itself can become a mistake. It takes a large amount of money to develop a loyalty program, therefore to start it just following fashion trends is a way to the unwise dissipation of resources. Only those companies, which are ready to take on responsibility for the long-term development of customer relationships and understand that any worsening of program’s terms will make loyal customers infuriated and merciless critics, may turn to the loyalty program.

What kind of program to choose as an instrument for customer database mobilization – short-term or discount – can become a problem for the company having no ‘prescriptions’ how to retain those customers and how to develop relationships with customer database.

The ‘dispersion’ of program’s terms in order to satisfy different customer segments with different needs and demands could also bear significant risks. It may result in program terms becoming too complicated and requiring huge investments.

Not only Russian loyalty programs are prone to falling into this trap. As surveys conducted among Britons show, a quarter of loyalty program members in Great Britain do not know at all how to use the collected points (Subway, 2010), only 22 percent of credit cardholders are satisfied with the existing loyalty programs and 57 percent of loyalty program members have never used a single reward point (Сapital One, 2011).    

Lack of professional personnel in the overheated market, insufficient integration of loyalty program into the organizational structure, misunderstanding of organizational strategic goals on the part of managers and a discrepancy between the implemented loyalty program and those goals are worth mentioning among other important problems of Russian loyalty program market.  

But for the company, which has made customer centricity a core element of its strategy, which is ready for the laborious analytical work and conducting customer behavior researches on a highest possible level, the up-to-date toolkit of loyalty programs will provide with limitless possibilities for the mutually beneficial long-term dialogue with its customer.


[1] "Chase’s Ultimate Rewards program promises anything, anywhere, anytime, but I’m not sure in today’s saturated marketplace that that would be enough." – Bob Rosenblatt, General Manager of Customer Loyalty at Chase Card Services.

 

 

 

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