Another marketing strategy to create buyer loyalty

Syafruddin Chan Contributor Jakarta

With competition in all kinds of businesses becoming tougher by the day, it is not surprising that marketers are racing to modify their marketing strategies.

That customer loyalty is vital is now completely understood by every marketer. Hence, it is agreed the key is maintaining their loyalty, and, if necessary, pampering them so that they do not switch over to competitors' products.

One of the marketing strategies that can make the customer relationship highly personal and provide "royal" treatment to customers has been made possible by the Internet. Using this medium personalizes product offers and transactions. It also matches each individual customer's requirements. In marketing jargon, this concept is called relationship marketing (RM). Another tool incorporated within this concept is the membership card, with points or rewards for every purchase.

Apart from being highly personalized, another superior feature of RM is its cost-effectiveness in comparison with conventional advertising, a big budget game for conveying a message to the less clearly defined target. The one-on-one characteristic of RM leads to more focused concepts and definitely saves a lot.

With customer loyalty as its main objective, RM is also more targeted in providing "individualized" services and solutions. Another advantage is that the feedback is personalized as well.

The return on investment (ROI) when using RM is comparatively advantageous. In conventional advertising, after spending huge sums of money on production and media placement, a marketer anxiously awaits results. When the market reacts negatively, his massive investment simply goes down the drain.

In RM, initial costs are relatively low and the rewards for customers are given only after a transaction or a certain amount of purchases have been made. Admittedly, one of its attractive features is the rewards, which are budgeted at about 2.5 percent to 3 percent of the revenue received. This less risky method creates a healthy inflow of cash for companies that can be retained for quite some time before they return the small percentage to the contributing customer.

RM rewards are also quite different from price cuts or discounts given during sales and promotions. Here, the reward points are, in accounting jargon, "equal to monetary value."

Marketers also often say that this reward system also gives them a larger "share of the customer's wallet", because the rewards can only be used for purchases from the same company, while, in contrast, cash discounts -- given during sales -- that are retained by customers can be used for purchases anywhere or for other items, even competitors' products.

With today's highly advanced communications and information technology, e-commerce costs are reducing. This is another factor that is attributable to the accolade for RM as "the rising star" of present marketing.

The RM concept was pioneered by American companies, which are famous for efforts in satisfying customers to the maximum. Some of the major, US-based corporations, which actively use RM, are: Northwestern Airlines, US Sprint, Hallmark, Citibank, Hilton, Hyatt, General Foods, Sears, Microsoft, Motorola, to name just a few.

European companies were not far behind. British Airways, Eurotunnel and Nestle, for example, are also getting best results from RM. In Japan, meanwhile, Seiko, Toyota and Nissan have also adopted RM for their marketing.

This phenomenal marketing method has also been used for several years now in Indonesia. Among the major companies that have reaped profits from RM in the country are: Citibank, with reward points for its credit cardholders; Alfa supermarket chain, with its membership program; Matahari department stores, with Matahari Club Card (MCC); Metro department store, with Metro Yours card; BCA, with its Reward BCA program; and Pasaraya department store, with Pasaraya Passport. Most, like MCC and BCA, have made RM available for their customers through the Internet. Quite a number of multinational and local companies are currently in the final stages of launching RM, each with its own specific mechanism.

Another important premise behind RM is the "20/80 law", which refers to the categorization of customers into two major groups: the first 20 percent, which contributes 80 percent of the company's revenue and the second 80 percent, which provides only 20 percent of the revenue. Naturally, the focus is on the first cluster, which receives the best services and all the pampering. Gradually, almost every company now realizes that this group -- often referred to as the Most Valuable Customers (MVC) -- forms the core of its business and, as the company's survival largely depends on it, it deserves the best. So, the days of "equal" services to everyone are now almost over. Time, energy, capital and so forth, should not be wasted on noncontributing customers, say marketers.

For the Indonesian market, it may be too early to evaluate the success of RM, because most companies acknowledge that it is still "phase one". However, with the results so far, they are already moving in the right direction.

Admittedly, in any marketing effort, especially RM, identifying customers is foremost. This kind of detailed customer data helps create new product development, and product and service features that are demanded by the market with more specific and focused segmenting. RM, with its two-way and one-on- one capabilities, helps decision makers in companies provide right-on target solutions that increase both the level of customer loyalty and the number of loyal customers. (The writer is a senior partner at AdDirect Marketing)