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A better way to design loyalty programs

Janet L. Hoffman (Managing director of North American Retail in Accenture's Products operating group (janet.l.hoffman@accenture.com))
Eric M. Lowitt (Research fellow at the Accenture Institute for High Performance Business (eric.m.lowitt@accenture.com).)

Strategy & Leadership

ISSN: 1087-8572

Article publication date: 4 July 2008

Abstract

Purpose

The US retail industry seems headed toward a zero‐sum game, a place where growth comes from taking customers away from competitors. This paper aims to present three steps to reduce the risk of defection of customers.

Design/methodology/approach

Despite the widespread prevalence of loyalty programs in the retail industry, customer defection risk within the industry remains high. Research shows that 85 percent of the “loyal” customers are willing to shop elsewhere if properly enticed. In response, some retailers have adjusted their loyalty programs to align them better with what they believe matters most to their target customers.

Findings

The paper reveals that there are three key steps to achieving an effective loyalty program.

Research limitations/implications

In the summer of 2007, Accenture conducted ten independent but related surveys to assess behavioral loyalty of US retail customers in specific retail product categories (that is, retail segment markets). The ten surveys were conducted online simultaneously and were administered by a third‐party research vendor.

Practical implications

The paper offers this checklist for managers: align loyalty strategy with what matters most to target customers; recognize that price only buys volume but service earns continued loyalty; and use your loyalty strategy as both a defensive and an offensive weapon.

Originality/value

All loyalty programs are not equally effective. Retailers that ensure that their loyalty strategy is truly customer‐centric and use this strategy to both retain and acquire loyal customers will be the winners in retail's zero‐sum growth game.

Keywords

Citation

Hoffman, J.L. and Lowitt, E.M. (2008), "A better way to design loyalty programs", Strategy & Leadership, Vol. 36 No. 4, pp. 44-47. https://doi.org/10.1108/10878570810888777

Publisher

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Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited