'Millions' are wasted by blind loyalty

For all the talk about customer loyalty and relationship marketing, business is missing a trick. Millions of pounds are being squandered through lack of investment in effective customer retention and a misunderstanding of the true value of different customers, according to a report to be published this week by Abram Hawkes, the marketing consultancy.

Most companies in the business-to-business sector (some 90 per cent of 262 surveyed) claim to recognise the value of customer retention. And 61 per cent of these say they have evidence that proves a link between customer loyalty activity and the length of a customer's commercial lifetime. Forty five per cent of respondents in companies operating loyalty schemes even consider loyalty activities yield greater returns than above-the- line advertising.

Yet just 55 per cent have some sort of customer charter and only 44 per cent operate a care programme to nurture their most valuable asset, the report claims. Only 52 per cent claim to know their customers' lifetime value. And 56 per cent of organisations operating loyalty schemes offer them to all customers instead of segmenting their customer base to ensure the most effective use of resources.

The findings follow an earlier survey conducted by Abram Hawkes that analysed customer loyalty programmes for consumers. They reveal that a number of lessons are not being learnt, says Michael Brewer, a director at Abram Hawkes. "Although there is a commonly accepted line between consumer and business-to-business activities, increasingly this distinction is blurring. Is a self-employed customer a consumer or a business client? Distinct differences in consumer patterns are not always clear."

Customer loyalty schemes are increasingly becoming acknowledged as a relevant tool for the traditional business-to-business sector. Yet their effectiveness is often limited, either by over-enthusiasm or by ignorance. "The high number believing customer loyalty is a more effective use of money than advertising is surprising," he says. "But it reflects a sector where much marketing remains unsophisticated, as does evaluation of campaigns." While the situation is improving, all too often marketers follow the lead of competitors rather than assessing which approach is the best for them.

"Business-to-business cannot necessarily follow the accepted route of clubs, cards and points," he explains. "Yet many immediately think 'let's follow Tesco's example and launch a loyalty card'. A wiser approach is to understand the buyer's psychology and motivation. In many cases, a more appropriate step is to focus on improving service or providing a more tangible reward."

Mr Brewer said loyalty schemes were often no more than promotions leading to short-term adjustments in spending patterns. Few genuinely singled out customerneeds and only a small number of businesses surveyed could actually define their customers' worth. "This potentially means that the same amount of money will be spent holding on to a customer with a lifetime value of pounds l,000 as a customer worth pounds 1m." Mr Brewer said that those working in the motor industry, capital equipment and media have the best understanding of the lifetime value of clients. And telecoms and banking are the most likely sectors to operate a customer charter - both already invest heavily in consumer loyalty schemes.

Where a business has thousands of clients it can more easily adopt tactics such as cards, catalogues and points to boost customer loyalty. "With larger companies, the mechanics cannot be implemented in the same way. It's more an attitudinal shift which is required." Similar principles should be applied to companies' consumer loyalty schemes, too, Mr Brewer believes. "In all areas of business, there are two key requirements: contact management and effective tracking and the ability to collect sufficient information to analyse impact."

Effective customer loyalty programmes do not come cheap, he added. Nor does success come quickly. And once implemented, they can be difficult to withdraw from. "Unless no one has shown any interest in your scheme, how do you explain to those that have that you won't be doing it any more?"

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