Special report – Customer loyalty in a recession
Greater loyalty possible – says report
Surprise result for banks
Tesco responds to dissatisfaction with banks
It’s still important to ask permission
Word of mouth only good when positive
Recessions are bad places for customer retention professionals, because business will inevitably be showing low growth, however positive and effective your business efforts.
Those in financial services will be suffering particularly, due to the incredibly low esteem banks and card companies are finding themselves in right now and it is little better in retail.
High Street shops are closing by the handful, consumers have decided saving is a virtue, and car and house sales are in the doldrums. But there is hope, say the research firms, not in terms of green shoots, (which are not in the remit of this article), but because customers would prefer to be loyal if companies do the right thing by them.
According to research carried out by Ipsos MORI for the Logic Group, there are significant opportunities remain for improving feelings of loyalty among customers, with almost half of the population not taking part in a loyalty programme of any sort.
The majority of consumers that have signed up for loyalty programmes described themselves as feeling only ‘fairly satisfied with the benefits’ in the retail sector (51%). Only 24% in retail and 13% in financial services were prepared to describe themselves as feeling ‘very satisfied’.
The research also provides an insight into the different demographic and age profiles of consumers’ attitudes to loyalty, reflecting the need for businesses to recognise these if they are to succeed in retaining customers during the difficult year ahead. For example, 15 – 24 year-olds seem to see little value in today’s loyalty programmes, with only 28% being a member of any such programme.
Simon Atkinson, managing director of loyalty for Ipsos MORI, added: “In a business environment where the focus has shifted sharply onto the retention of customers, it is striking that so many of us don’t take part in loyalty schemes, while those of us that are members don’t necessarily value them. Current programmes urgently need to be reviewed and refocused if businesses are to successfully create true loyalty amongst today’s consumers.”
The report concluded that customer loyalty is not necessarily only about specific tangibles such as points or money off and that, instead, good customer service (34%) remains the leading driver in encouraging people to spend more in the shopping and retail sector, even within loyalty programmes, followed by rewards that were relevant to the individual (30%). Both of these were prioritised ahead of rewards that provide money off (25%) or periodic vouchers (16%).
Supermarkets remain ahead
Supermarkets are ahead in terms of loyalty, with 72% of consumers this is the sectors they felt most loyal to. The surprise of the study is that banks are not far behind, and one suspects this is more to do with the difficulty of moving financial service provider than about how highly people hold them in esteem. The Logic Group would agree, suggesting that loyalty to supermarkets and banks “may suggest that for many people loyalty today is still more about habit than a deeper attachment.”
“The traditional models of engendering loyalty are changing with the economic climate; even in sectors where the barriers to switching brands are significant. As consumers we are very clear on the need for organisations to deliver on promises, customer service and recognising us as individuals,” Antony Jones, CEO of The Logic Group, said. “As the recession bites, it is evident that businesses have a very clear brief: focus on improving the customer experience and building loyalty through schemes that deliver rewards that are actually valued by customers.”
In the retail sector, only 24% said they were “very satisfied” with loyalty schemes, highlighting the potential to further engage with shoppers. “In a business environment where the focus has shifted sharply onto the retention of customers, it is striking that so many of us don’t feel part of loyalty schemes,” Atkinson noted. “And those of us that are members of loyalty schemes don’t necessarily value them. Current programmes urgently need to be reviewed and refocused if businesses are to successfully create true loyalty amongst today’s consumers.”
Tesco to open bank branches in stores
Customers are voicing their dissatisfaction with banks, but until now, they seem content to stay with long term providers. This may shortly change, if Tesco makes it easy enough to move.
The UK’s largest supermarket will open bank branches in 30 of its stores by the end of 2009 as part of a massive assault on the financial services sector.
The branches, which are likely to be called Tesco Bank, come as the retailer gears up to launch a current account, which it hopes will attract customers who are disillusioned and distrustful of existing high street banks and their high fees.
Tesco has appointed a raft of heavyweight figures from financial institutions such as Barclays and Scottish Widows as non-executive directors of its Tesco Personal Finance (TPF) division to oversee the move into mainstream banking.
Best headline of the week – “Springsteen fan Andy Higginson born to run a bit of Tesco”
Please feel sympathy with Andy Higginson, who managed to tell the Daily Telegraph that he was a Bruce Springsteen fan, which led to the headline above last week.
But that is about the only thing he needs sympathy for.
Higginson was until recently the Finance Director of Tesco, and has taken over the Retailing Services division of Tesco which is “essentially all the bits of Tesco’s UK operations that can’t be checked in a basket and beeped through a scanner. It includes all of Tesco’s online activites, Tesco Telecoms and Dunhummby, the consumer research company majority owned by Tesco. It has £3bn of annual sales and made around £400m profit last year.
He will also be running the Tesco bank, which Higginson says will be “old-fashioned and conservative”.
“Some banks have grown up using practices that are the opposite of Tesco – we encourage customer loyalty but many banks punish loyalty, they get people in with low rates and then make money. Ours is a different philosophy,” he says. Customers will be able to gain Clubcard loyalty points through using the bank.
“The markets have now become far more rational. Some banking businesses have got into trouble for growing too fast and doing daft things,” said Higginson.
The first of the new branches will open next month in Brislington, Blackpool and Coventry following a trial in Glasgow. Higginson said that Tesco could eventually have banks in all its branches.
TPF already offers credit cards and insurance products, however it has plans to more than double profits at its Retailing Services division from around £400m to £1bn. Current accounts will be launched in 18 months to two years once new IT platforms are up and running. In the meantime Tesco will broaden its current product range with more savings and insurance products. Mortgages could follow.
Other new appointees are Adrian Hill, the former chief executive of HFC Bank, and Bill Main, the former chief executive of Scottish Widows Investment Partnership, as non-executive directors. The appointments follow that of former Barclays director Graham Pimlott. Tesco is looking for a fourth non-executive with specialist knowledge of the insurance market.
Asking permission still important
If you ask permission first, it is still OK to send email.
Thiss is the result of research from loyalty marketing firm Epsilo whose survey found that 62% of consumers said that the permission-based email they receive from CPG companies has a direct impact on offline activities such as making purchases and shopping habits, and 63% said they have a more favourable opinion of CPG companies that send them permission-based emails.
Furthermore, 57% said they are more loyal to CPG companies and their products or brands because of the permission-based email communications they receive.The research was undertaken to measure how permission-based email campaigns build brand recognition and customer loyalty, and how email communications influence consumers’ online and offline behaviour. CPG scored the highest, compared to all other sectors examined, when consumers were asked about the relationship between permission-based email and their offline purchasing, opinions of companies and feelings of loyalty. “Consumer packaged goods companies face a challenge when incorporating email communications into their multi-channel marketing mix.
They need to engage consumers and find a way to allow them to interact with brands and products both online and offline,” said Kevin Mabley, senior vice president for Epsilon Strategic Services. “The benefits of email marketing campaigns for consumer packaged goods companies extend far beyond the internet and into stores and homes.” Email communications elicit behaviour from consumers that is measurable by marketers as well as behaviour that is otherwise difficult to track.
When asked how often consumers took the following actions as a direct result of receiving permission-based email from a CPG company, on a four-point scale, the survey revealed that:
91% of respondents downloaded or printed a coupon;
81% clicked on a link in an email to learn more;
76% tried a new product for the first time;
75% read company or brand content;
67% researched retail locations that carry the product;
66% ordered a product sample;? 65% shared a coupon or forwarded the email;
65% purchased the product online;? 34% typed or copied a URL directly into their browser.
Favourable word of mouth beats everything else
But each detractor costs 1.3 new customers
In an unfavourable economic climate, companies must focus on creating positive word-of-mouth (WoM), according to the findings of a Net Promoter-based study into the B2C wireless market by Satmetrix. The study examined the financial impact of both positive and negative WoM, and highlighted the impact that customer loyalty and WoM can have on a company’s brand and bottom line.
The study was based on the Net Promoter Economic Framework, which determines total customer value based on buyer and referral behaviours of ‘promoters’ (customers who are likely to recommend the company or its products) and ‘detractors’ (customers who are unlikely to recommend the company or its products). For the study, ‘buyer economics’ refers to how much a customer spends over a given period of time, and ‘referral economics’ refers to the amount of new business that is gained or lost as a result of the customer telling others about their experience.
The Impact of Word of Mouth’ study discovered that each promoter was worth approximately US$1,700 and accounted for approximately one-half of a new customer acquired through positive word-of-mouth.By comparison, each detractor accounted for the loss of 1.3 new customers through negative word-of-mouth.
The lost business associated with these negative referrals was found to undo the entire value of the detractor’s own purchase behaviour as well as causing the loss of a further US$300 (so a detractor is worth US$2,000 less than a promoter). “While reported spending did not differ between promoters and detractors, the detractors’ negative behaviour represents a significant hidden cost and a net drain on the bottom line,” explained Dr Vince Nowinksi, director of methodology for Satmetrix. “A company’s ability to take action to increase promoters and reduce detractors has a significant impact on financial performance,” concluded Dr Laura Brooks, vice president of business consulting and methodology for Satmetrix.
“Companies with a business strategy focused on the customer experience tend to enjoy stronger brand affinity, improved customer retention, and increased growth.”