Interested in implementing a Loyalty Scheme? Let’s investigate the secrets to ensuring it’s effective for you!

Loyalty schemes are a great incentive for consumers, lets face it, and don’t we all love to be rewarded with free stuff/extra points/discounts? I know I do!

loyalty

The popularity of these programs has exploded around the world, currently increasing in attractiveness (Sharp & Sharp, 1997). As competition in many markets is increasing, these schemes are introduced to build customer loyalty based on a customers purchase history (Yi & Jeon, 2003). Looking at some academic literature, the ultimate goal is to establish increased customer retention from profitable sectors, done by providing enhanced satisfaction and value to particular customers (Kannan & Bramlett, 2000).

This blog will critically analyse one case study showcasing how and why it has become a success. Then followed by some hot tips so keep reading!

Below you’ll see a video from Lance Walker presenting at a TED Talk on customer loyalty programmes, which is a great watch! He speaks about how we carry our mobile phones instead of our wallets and purses, which will increase the utility of loyalty programmes on mobile, which leads fantastically onto the IKEA case study.

IKEA

ikea logo

After hearing what Lance had to say in the TED talk, we are aware that mobile is playing an explosive role in loyalty schemes, especially for IKEA as it continues to build motion in the US with the Family Program.

ikea family

STRATEGY

The umbrella strategy at IKEA is to focus on offering customers every day low prices.

GOAL

The goal of the loyalty program is to reward IKEA best customers with special offers and discounts throughout the store.

This scheme has been available in other countries around the world for a number of years, such as Europe and the Far East, however was introduced into the US in 2011. The global communications manager for IKEA Family unveiled new plans at the Retail Bulletin Customer Loyalty Conference 2012 in London, including: rebranding, data anaylsis and mobile marketing. Holst stated “all countries should present a unified front” – creating an impressive brand image that will ultimately enhance brand reputation across the globe.

A key part of this strategy is mobile with employees using tablets in store to sign up new customers to the Program and were SMS messages are sent to keep customers aware of new products. The tablet allows has been extremely well received with stores using at events in and out of store to sign up new members – is this something your brand could do? Regarding the SMS messages, IKEA are placing heavy focus on delivering targeted content specifically for the Family Program members – is this also something your brand could do? SMS have been a great way to help unite it’s various communication channels together having found that the value of a consumer will increase the more channels and programs they are signed up to.

PROS

  • Gives members a program more relevant to their needs
  • Reflecting a shift in increased mobile
  • Personalised approach – particularly valuable (O’Brien & Jones, 1995)
  • Extended services (longer period for refund and exchange policy)
  • Not based on a points system, instead it’s a continuous process of giving back to its consumers

CONS

  • High cost of promotion and implementation
  • Time consuming and complex to operate regarding human resources
  • Re-launch can be a disadvantage as conumers are used to the company and attitude (Burt et al, 2011)
  • Long way off generating as many advantages as Tesco (worlds most successful loyalty card – in many aspects) (Burt et al, 2011)
  • Risk of failing foul of Consumer Privacy act

To critically analyse this case study, we can see from academic literature that Palmer & Beggs, (2000) state that loyalty programs and market segmentation should be inextricable linked for these two very important reasons:

  • The data typically collected can allow for detailed anaylsis of customer profiles so that a company is able to accurately identify very small market segments with distinguishing buying behavior
  • On the basis of information collected, suppliers are able to adapt the product offer to the needs of individual segments

IKEA possess these traits however, it is important to recognise that this is a continuous process and large organisations should be aware of mistakes to avoid in order to enhance the effectiveness, and desire to become part of a brands loyal community.

Check out this Whitepaper from Forte Consultancy on Loyalty Programs gone wrong and how to avoid the common mistakes!

To summarise this blog, take a look at some secrets to ensure your loyalty scheme is effective:

  • Integration of loyalty into the full experience

Integrate payments and mobile technology into the store experience to ensure the transaction is more enjoyable

  • Use the data

Important to move beyond the “discount only” standardisation and build market leading capabilities to target the highest value customer

  • Build partnerships

For example, collecting rewards across a broad variety of non-competitor retailers furthering value proposition to customers – this will capture external data that could be beneficial

  • Maximise the difference between perceived value and real cost

Develop a series of offerings that are highly valuable to top customers but have little marginal cost to your company

  • Allocate loyalty reinvestment to the most profitable customers

Offer rewards based on ticket price where loyalty rewards spend remains similar to other brands in your market – this is aimed at driving profitability.

If you are interested in finding out more, take a look at this Blog from the Wise Marketer on the 30 major factors behind a successful loyalty programme!

References:

Burt, S., Johansson, U., & Thelander, Å. (2011). Standardized marketing strategies in retailing? IKEA’s marketing strategies in Sweden, the UK and China. Journal of Retailing and Consumer Services, 18(3), 183-193

O’Brien, L. and Jones, C. (1995) Do rewards really create loyalty? Harvard Business Review, May-June, 75-82

K. Kannan, & M. D. Bramlett. (2000). “Implications of Loy- alty Program Membership and Service Experiences for Customer Retention and Value.” Journal of the Academy of Marketing Science 28 (1): 95-108

Palmer, A., Mcmahon-Beattie, U., & Beggs, R. (2000). Influences on loyalty programme effectiveness: a conceptual framework and case study investigation. Journal of Strategic Marketing, 8(1), 47-66

Sharp, B., & Sharp, A. (1997). Loyalty programs and their impact on repeat-purchase loyalty patterns. International journal of Research in Marketing, 14(5), 473-486

Yi, Y., & Jeon, H. (2003). Effects of loyalty programs on value perception, program loyalty, and brand loyalty. Journal of the academy of marketing science, 31(3), 229-240

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