Rewarding Loyal Customers
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Feb 13, 2005 - New Sunday Times


Increasingly, companies are offering reward schemes to attract and retain customers. YEANG SOO CHING looks at the implications. HERE are the fundamentals: Customers are not equal. They are individuals, and they demand highly personalised products and services. Behaviour follows rewards. Customer behaviour more often than not is influenced by rewards they receive.


Companies with the best customer information and which possess the resources to utilise this information effectively will be able to retain their customers.

In an increasingly challenging marketplace, customer loyalty matters more than ever, and loyalty programmes have become an imperative.

Insights gained through such programmes can be turned into commercial gains.

Key findings in research analysis maintain that industry sectors which see loyalty programmes as an integral part of their business are more able to extract return-on-investment from their programmes.

Research also points to a "loyalty momentum effect", that is, payback from loyalty programmes appear to snowball. The more you do it, the more you get out of it.

In the United States, loyalty programmes started as a "green stamp" collection in the 1940s. Stamps were given in return for purchases. Collect enough of these and one could redeem gifts.

Over the years, loyalty programmes have evolved from stamp collection to card programmes.

While loyalty programmes have matured in the US and Europe, Malaysia and countries in Asia Pacific are experiencing a new wave.

Traditionally strong exponents of loyalty programmes, the hotel sector and the travel/airlines industry have lost their lustre, and other sectors, such as retail and banking, are emerging as the new stars in the whole game plan.

What is a loyalty programme?

Experts say it starts with the gathering of customer intelligence to assess their requirements so as to help companies deliver better and more personalised services and products.

In short, it is a marketing tool to keep existing customers and attract new ones.

The rationale behind it: find, track, communicate, reward, promote, analyse and customise.

Models range from stamps and stickers, to plastic cards and chip-based cards.

In Asia, loyalty programmes take the form of a card to collect points which can then be redeemed for gifts. There is also the discount card programme.

"Within the programme, there are two types," says Nyang Koon Seng (picture), chief executive officer of Advance Information Marketing Sdn Bhd (AIM), and a seasoned loyalty programme organiser.

The first type is the coalition, which gives card holders the leeway to collect points from various merchants who are partners in the scheme.

The other is termed single merchant (private label) programme. This is an in-house programme where card holders can only redeem points from the merchant’s outlets.

Apart from retail merchants, banks run loyalty programmes too, primarily with their issuance of credit cards.

But since all banks issue credit cards that offer some form of loyalty programme, how does one differ from the other?

The answer, says Nyang, lies in customer data mining, and utilising this information to increase customer value, drive profitability and decrease operational costs.

To outdo the other, some companies are adopting lifestyle trends. They add in soft benefits such as free concert tickets, or discounted ones, or they send their loyal customers festival gifts, birthday cards and so on.

"Merchants can calculate that the top 30 per cent of their customers contribute 70 to 80 per cent of sales, and the top 10 per cent contribute 35 to 40 per cent. Therefore, it is imperative to know who their customers are, in order to retain them," says Nyang.

He points out that loyalty programmes are found even in small businesses like the neighbourhood grocery shop.

Patronise it regularly enough, and chances are one’s purchases will be home delivered. One could get some freebies thrown in as well.

"Now if small businesses need loyalty programmes, what more big companies, which can handle big volume merchandise but may lose out in customer relationship."

Setting up a loyalty programme can be costly, so objectively, a company should only reward its best customers.

However, Nyang advises, once the customer profile is obtained, a company can focus on the important group, maybe the top 10 per cent, and then upgrade the next "potential best".

"For example, a company that sells petrol. If it wants to promote its motor oil, it could send postcards to targeted customers to inform them, rather than take an advertisement out.

"This personal touch can reach those who can help increase sales."

Apart from the financial outlay, a company needs to also invest in time and resources.

Driven by these factors, more and more businesses are adopting a BPO (Business Process Outsourcing) model, whereby specific business tasks are outsourced to third party service providers.

This is where AIM comes in. As a leading BPO service provider in the country, AIM provides three core services: consulting, technology and outsourcing.

In short, total integrated loyalty solutions.

These range from data management to marketing services, contact centre, procurement and fulfilment, as well as technology solutions.

While AIM has served several major industry segments, much of the company’s loyalty experience have been in consumer goods, financial services, hospitality, retail and electronics, as well as telecommunications.

Its subsidiary, Customer Loyalty Solutions Sdn Bhd (CLS), is associated with the companies that manage RealRewards in Malaysia and MoreRewards in Singapore, which have a combined card membership of more than five million.

With the availability of loyalty marketing through BPO, companies can leverage on a vast range of loyalty marketing functions without using their own personnel, infrastructure and resources.

According to global market research company IDC, the outsourcing industry in Malaysia is set to grow at 17 per cent a year compound annual growth rate (CAGR) between 2002 and 2007.

Global spending on BPO services will increase from US$405 billion in 2003 to $682.5 billion in 2008, with a CAGR of 11 percent.

TIPS for implementing a successful loyalty programme
	Establish clear objectives for running a loyalty programme.
	Make your loyalty programme a long-term project.
	Know your customers through analytical data management.
	Build a communication channel (call centre or any other medium) for your customers.
	Reward your customers (via a one-stop depot that manages the smooth distribution of your company’s rewards to your customers).
	Ensure technology powers every touch point.
	Measure your costs and returns.