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Thursday, February 12, 2015

Using Pricing To Increase Customer Loyalty

Using Pricing To Increase Customer Loyalty

"Loyalty marketing has reached a plateau. It must now move to the next level, which is value-oriented customer loyalty programs. The new value-oriented customer loyalty programs attempt to establish an emotional relationship between company and customer to create long-term loyalty. This strategy is becoming increasingly popular in the US, Europe and Asia.

The main difference between value-oriented customer loyalty programs and the current loyalty programs is that they do not focus solely on simple discounts but rather offer a powerful package of advantages consisting of hard and soft benefits (financial and non-financial)...

While discounts have a high value for most customers (everybody likes to save money) they alone do not create loyalty. Long-term loyalty can only be established on an emotional level. Customer loyalty cannot be bought but must be earned over time with good value for money, superior products or services, and overall integrity of the company. Discounts alone attract bargain hunters. For instance, the customer who has joined a loyalty program for the 10% discount will be the first to leave if a 15% discount is offered elsewhere.

It must also be noted that giving discounts is giving away pure profit with no certainty that the increase in sales volume will compensate for the discount given. Therefore, smart loyalty marketers use more sophisticated pricing methods that make customers earn discounts rather than simply give them away. Discounts are used to reward customers and to direct their behavior into specific directions such as using other products, increasing purchasing volume, or switching to products with a higher profitability. Over time this type of discount builds a protection barrier which makes it more difficult for competitors to lure away customers. Consequently, while discounts or other financial incentives will get customers to join a program, soft benefits, the second half of the benefits package, actually build the relationship. Thus, the identification of the right mixture of hard and soft benefits is crucial to the development of a successful customer loyalty strategy...

Imagine you drove your luxury or sports car to the airport and instead of leaving your car in an unguarded parking space your are able to park it at the Avis station. For free. And protected. Imagine that when you got back your car had been cleaned inside and out. A dream? Not for owner’s of the Porsche loyalty card!

Imagine getting tickets for sold out shows like a Barbara Streisand concert at a special price, having access to vacation homes around the world, a free babysitter, tickets to a movie opening or premier nights, special rates for Harley Davidson rentals, an opportunity to be an extra in movie productions, have training sessions in a flight simulator, fly a MIG, or dine with celebrities. These are typical examples of soft benefits. This is the part of the loyalty program that is responsible for the long-term loyalty. There is no standard solution for a company or industry in the selection of the right soft benefits. It depends on the target group of the loyalty program"
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