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Customer Insights Breed Customer Loyalty
A new Aberdeen report says profitability is dependent on repeat buyers and a focus on lifetime customer value.
Posted Jul 18, 2008
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A recently published report by Aberdeen Group finds that best-in-class retailers are five times as likely as laggards to be tracking, storing, and analyzing customer analytics that identify specific customer buying insights. Those retailers, the report finds, are also much more likely to use loyalty elements that are personalized to suit specific customer segments.

Sahir Anand, an Aberdeen retail research analyst and author of the report, "Responsive Customer Loyalty: Creating Customer Commitment in Retail," says more than nine out of 10 companies (93 percent) use loyalty programs, including point perks, rewards, frequent buyer offers, or private label credit cards. However, the presence of a program alone isn’t enough to ensure that customers are indeed more loyal. According to the report, three out of every four retail firms (74 percent) have seen "partial to no tangible improvement" in customer loyalty compared to their competitors -- hardly a ringing endorsement of the effort.

According to Anand, the most successful companies in terms of customer loyalty programs are those that recognize lifetime customer value, determined by using the present value of expected future cash flows from that customer’s business. Not all retailers have the wisdom or commitment to follow that path, however. Rather than concentrating on building loyalty programs that will maximize a customer’s future spending and improve lifetime customer value, these behind-the-curve retailers are instead focusing on short-term successes and the tactical details of the loyalty programs themselves.

Profitability, Anand says, is more dependent on long-term strategies, such as developing repeat buyers and reactivating those who have not bought a product or service in a given time period (e.g., three, six, or 12 months). To develop loyalty programs that are more successful, Anand recommends that retailers define and revise guidelines during different stages of program development (e.g., planning, implementation, and analysis). He also recommends that retailers follow the best-in-class strategy of developing a process that includes a thorough evaluation of all the relevant metrics that contribute to a successful customer loyalty program.

Business attributes such as availability of products for promotion and optimum sales price are also critical in developing successful loyalty programs, Anand says -- but they're overlooked by 89 percent of laggard firms. Companies that haven’t already done so should make customer loyalty programs strategic priorities in their three- and five-year customer management plans, Anand says, pointing out that doing so could lead to realignment of other marketing goals.

Another way to improve customer loyalty, according to Anand, is to develop segmented customer profiles for long-term relationships. Anand also points to the importance of analytics as the backbone of successful customer loyalty programs -- yet less than half (46 percent) of the companies surveyed use analytics in conjunction with these programs.

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