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Loyalty and relationship-based marketing

By Debbie Dionysius

Attracting and rewarding customer loyalty in the hospitality industry, whether in Asia or anywhere else in the world, must, first and foremost, be desirable enough to change the behaviour of customers; and be affordable and targeted at customers who are valuable to the business.

It does not always work. Here in Thailand the ill-fated Elite Card was scrapped by the government after huge losses and its failure to reach anywhere near its target customer base. In theory the Elite Card looked good: upgraded travel privileges, priority immigration, a range of discounts at restaurants, golf courses and spas and various upgrades.

But it did not achieve the essential objectives of a loyalty programme, which are to encourage customers to increase spending with a company (and therefore create customer lifetime value); better retention of customers; intelligent deselection (getting rid of unprofitable customers); and to build a relationship where some customers are loyal because their needs are exceeded, or because the relationship is profitable to both sides.

These ingredients apply in Asia as much as anywhere.

A little history is in order. The case for building loyalty around relationshipbased marketing goes back to 1990 when The Harvard Business Review in the United States printed an article which argued the case for increasing profits by decreasing the rate at which customers defect. It found that by retaining just 5% more of its customers, a company could almost double its profits. So the idea of the loyalty programme was born.

There are several different ways of retaining customer loyalty, such as a so-called advantage card which offers discounts and deals on accommodation, meals etc; credit-card schemes, reward cards, points cards and club cards.
Also, it is important to define the psychology of customer loyalty. Customers can just as easily be disloyal as loyal if the circumstances do not meet their needs. A survey in the US by a food research group, IDG, found that the top three reasons given for joining a loyalty programme were: benefit of being rewarded for products and services frequently used (54%); greater discounts on products and services (49%); and special member-only perks (42%).

Loyalty programmes are not, however, sure-fire guarantees of increased profits through customer retention. Rewards should be attainable and affordable, they should have unique benefits that competitors cannot copy and they must make life easier for the customer.

Nor do loyalty programmes need to be just exclusive to one company. Partnered programmes offer strengths such as fewer cards for the customer to carry, quick earning of points, greater variety of rewards, lower development costs, sector exclusivity, coalition marketing campaigns and high penetration. The airline alliances that have existed since 1997 are a good example of partnered programmes. Many big retailers have point conversions with airline frequent-flyer programmes.

Therefore in recent years more and more companies have been using Customer Relationship Marketing (CRM) customer databases, data warehouses and data mining to provide better business intelligence and decisionmaking support. This process is called Customer Lifetime Value (CLV) by which management can maximise customer profitability during the whole of each customer's life cycle with the company.

There are many uses to which CLV can be put. For example: customer behaviour profiling; customer lifestyle and demographic profiling; product category relationships and cross-selling; online shopping suggestions and pricing. A value added to this is the availability of a wide range of direct customer communication tools these days such as texts, multimedia messaging, e-mail, instant messaging, voice messaging, Internet chat rooms, websites, bulletin boards and videoconferencing. There is still the old-fashioned mail (direct mail) telephone and fax.

So can a loyalty card, or relationshipbased marketing, really create loyalty among Asia users? By itself, no. It is only one element of the overall customer experience, whether it is shopping, staying in a hotel or flying. Factors such as price, quality, service and convenience all contribute to fostering loyalty. The loyalty card, especially among shoppers, is considered more of a "nice to have extra" rather than an essential part of the shopping arsenal. The IDG research found that customers did, however, see a clear value in retaining a card and that it helped lead to better service and strengthened relationships, resulting in higher spending and more frequent visits.

Finally, loyalty programmes' reach and objectives are different from branding. But with a decline in recent years in the effectiveness of branding, it is now a very vital component of many companies' marketing inventory. Loyalty programmes can increasingly step into this breach

This Op-Ed piece originally appeared in the Bangkok Post. Published on April 26, 2010.
Forum discussions are available on the publisher's website

Debbie Dionysius is assistant vice-presidentfor destination marketing at Laguna Resorts & Hotels Plc in Phuket.

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