Do Loyalty Programs Fit your Overall Marketing Strategy?
The loyalty plan or membership program must suit the aspired positioning of the product and/or brand. This is as important as the choices made for packaging, pricing, sales channels, or any other part of the marketing mix. A balanced marketing strategy must be aimed for.
The market type, product type and the chosen marketing strategy all influence the possibility to apply loyalty programs.
Market Type
How loyalty or membership programs can be applied is partly dependent on the type of market that is targeted. In this article I make a distintcion between consumer markets and industrial markets. These are also known as Business-to-Consumer (B2C) and Business-to-Business (B2B). Especially the difference in the marketint mix in these vastly different markets are of great influence on the choice.The industrial market considers price, product policy and service as highly important marketing instruments. Promotion is not considered very important. In Consumer Markets promotion takes a very important place. In other words: in the B2B market, product properties, and vendor properties are determining factors in choosing a product. In the B2C market, this choice is much more influenced by promotion.
At first sight, consumer markets look much better suited for applying loyalty programs. But exceptions can be found here.
Maintaining relationships is highly important in Business-to-Business. Keeping track of all contact-moments with the customer is customary in these markets. This way, organizations can build their relationships with other businesses in a similar way as loyalty plans.
Another exception are consumption articles for industrial markets. With these products, often a straight rebuy takes place. The vendor can try to strengthen his partner image by allowing regular buyers to save for other products. However, the customer won't put in a lot of effort in this, so the saving must be as automatic as possible. For example, Hewlett-Packard has used this method in the past to sell toner cartridges for their laser printers.
Product Type
Durable Products
Durable products lend themselves, because of their longevity, not particularly well for saving programs. There simply aren't enough repeat buys to save anything within a reasonable period. There is an exception on this: a loyalty program is feasible when it is focused on increasing loyalty to a specific supplier of durable products. It is not unlikely that consumers have a need for a line of different durable products: refrigerator, oven, dish washer, micro wave, television, etc, etc. A consumer may engage in a loyalty program of one supplier.In Loyalty Programs Characteristics I stated that the communication of club/membership programs is focused on products and brands. The buying transaction is far less important. For this reason, the club or membership program is the best way to increase loyalty in consumers for durable products. Bang and Olufsen, supplier of high-end, exclusive, audio and video equipment, has been doing this for years. Anyone who owns B&O equipment, can register at the BeoClub. You will receive a glossy magazine every once in a while, stay up-to-date with new developments, and sometimes invitations for exclusive happenings.
Sound familiar? It should, because almost every automotive brand is doing exactly the same thing... it does raise the question of how effective this kind of loyalty program is working when everybody is doing it.
(Fast Moving) Consumer Goods
Especially with consumer goods, regular repeat buys are happening. These goods are excellent candidates for collecting programs and loyalty plans. Most existing loyalty programs are focused around consumer goods (gas miles, frequent flyer miles, super markets loyalty cards, etc.).
Marketing Strategies
Below I take a look at a number of well-known marketing strategies, and consider the possibility of collect- and loyalty programs.Porter's Generic Competitive Strategies
Cost LeadershipWith Cost Leadership a company works towards as low a price as possible by maintaing a low costs level. The low prices are used to gain a high market share. Because of the--often high--costs involved in maintaining a collect or loyalty programs, they don't seem to fit in very well with a company with a cost leadership strategy. It also raises the question of the price fighter image, which may well be damaged by introducing a loyalty program.
Situations may arise, however, that introducing a program may be necessary. For example, because the competition is doing it (me-too). If this is the case, a low cost level for the loyalty program must be achieved to maintain cost leadership.
Differentiation
With the Differentiation strategy the company works towards differentiating the product on a specific, for the entire market important, point from the competition. Think of durability, trustability, quality, service(!), etc. Introducing a loyalty program may well be a strategy that can be used to achive differentiation.
Ansoff's Growth Strategies
According to H.I. Ansoff, growth can be established by utilizing one of four strategies. He has created the following matrix:
| Current Products | Future Products | |
| Current markets | Market Penetration | Product Development |
| Future markets | Market Development | Diversify |
Collect and loyalty programs can play an important role in the Market Penetration strategy. There are plenty of examples of products gaining a higher market share by utilizing a loyalty plan or collect program. With the other strategies (market development, product development, diviersification) a short term collect program can help the introduction. Long-term collect programs and loyalty plans are less suited, mainly because the product and/or market combinations must first prove themselves.
