relationship with a CRM program that involves bike rallies, clothing, collectibles and their HOG clubs.
If customers don’ t want a relationship with your product or service, they may still appreciate a dialogue with you. However, it has to be a dialogue, not a companycentred monologue. Many customer loyalty programs and company Web sites have been used to create a communication channel between customer and company. But real dialogue is two-way communication. And if you have hundreds of thousands of customers, it is hard to do anything other than talk at them.
The third type of relationship to have with customers is not to have a relationship with them at all. Just provide good products and services at competitive prices and be easy to do business with – with no strings attached. The company focus is to provide the best customer value – through its products and service. Nothing more, nothing less. Many customers will respond to this offer with the best type of loyalty imaginable – repeat purchase and positive recommendations to others. There is an old saying that“ the best product in a market sells itself”.
CRM OR CPM The inherent problem with CRM is identified in its name by the words‘ relationship’ and‘ management’. It will be difficult for customers to have much influence in the relationship if companies seek to manage it – to their profitable advantage. A vivid example of this‘ management’ is shown in the application forms for the Ansett and Qantas frequentflyer programs. Each has a section on Terms and Conditions written by the airline’ s legal department. It is interesting to speculate on the type of customer relationship that starts out with:“ A talk from our lawyers”.
Hence, in many consumer markets, CRM would be better described as CPM – customer profit management. Now there is nothing wrong with CPM – it should be standard practice for every firm. But when CPM is renamed as CRM, it motivates some marketing managers to try to buy rather than win the loyalty of their customers. A common tactic is to launch a customer loyalty program.
It turns out that there is a considerable body of research that suggests that most customers don’ t want to give their exclusive loyalty to any single brand in most product or service categories. Over multiple purchase occasions, they want some variety. Also, if they live with other people, the demands of the group require a portfolio of brands rather than the exclusive use of a single brand.
What we have here is what the research reveals, namely, that most people – typically 80 per cent or more – are multibrand buyers in a wide range of different product categories. 4 The implications of this finding put severe limitations on the potential effectiveness of most customer loyalty programs.
CUSTOMER LOYALTY PROGRAMS When most people exhibit multi-brand buying or polygamous loyalty, then what can a customer loyalty scheme hope to achieve? If it is designed as an offensive weapon it may secure a temporary firstmover advantage. However, if it looks as though it will change customer purchasing patterns, it will soon be countered.
Once these schemes become established in a market, their patterns of use
“ IF YOU HAVE HUNDREDS OF THOUSANDS OF CUSTOMERS, IT IS HARD TO DO ANYTHING OTHER THAN TALK AT THEM.”
often mirror the purchase patterns of the products and services they support. For example, the most frequent flyers in Europe are members of three to four frequent-flyer schemes – they exhibit polygamous loyalty to the schemes as well as the airlines. Typically, the infrequent flyers are members of only one scheme. It seems that these golden handcuffs neither induce single-brand loyalty among the heavy users nor significantly more purchases by light users. First and foremost, customers want a product or service that does the job required. If there is an addon benefit offered by a customer loyalty program, then people will join if it is‘ free’. In the case of frequent-flyer programs, they will use convenient airline alliance partners to get every entitlement they can.
People tend to participate in loyalty schemes for a variety of reasons. For example, because they like to collect entitlements and / or because they see these schemes as a form of( delayed) price discount. Few, however, seem to participate because they want to change their established patterns of purchase or form a deep-seated relationship with the company involved.
The perspective outlined so far suggests that only modest gains can be made from even a well-designed customer loyalty program. Some scientific research on the Australian FlyBuys multi-retailer scheme confirms this view. 5 So do rumours from the business world that suggest that airline alliance and loyalty schemes have‘ completely failed’. 6 Hence, we are likely to see more of these schemes re-evaluated in the next few years. 7
PUTTING CUSTOMER RELATIONSHIPS IN PERSPECTIVE
For most of the products and services we buy on a regular basis, brand preference exists. The crucial question is whether it can be attributed to some type of relationship we develop with the brand – or whether it is driven by salience( we know more about some brands than others), availability( it is in stock where we usually shop) and / or habit( the brand usually bought). Extensive empirical research over the past 30 years suggests that for most people it is the last three factors. 8 Hence, CRM programs designed to build deep-seated relationships with customers are more likely to be a romantic distraction than a costeffective marketing strategy. ✪
* Professor Grahame Dowling is head of marketing at the AGSM.
FOOTNOTES
1 Reichheld F., The Loyalty Effect, Boston: Harvard Business School Press, 1996.
2 Schultz D.,‘ Learn to differentiate CRM’ s two faces’, Marketing News, p. 11, 20 November 2000.
3 Fournier S. et al.,‘ Preventing the premature death of relationship marketing’, Harvard Business Review, 76, 1, 42 – 51, 1997.
4 For an overview of this research, see Dowling G. and Uncles M.,‘ Do customer loyalty programs really work?’ Sloan Management
Review, 71 – 82, Summer 1997.
5 Sharp B. and Sharp A.,‘ Loyalty programs and their impact on repeat-purchase loyalty patterns’, International Journal of Research in
Marketing, Vol. 14, No. 5, 473 – 486, 1997.
6 Sandilands B.,‘ More leg room and a walk-up bar’, Australian Financial Review, Special Report, p. 3, 12 July 2000.
7 Cigliano J. et al.,‘ The price of loyalty’, The McKinsey Quarterly, 4, 68 – 77, 2000.
8 Ehrenberg A. et al.,‘ Brand loyalty’, in Earl P. and Kemp S.( eds), The Elgar Companion to Consumer Research and Economic
Psychology, UK: Edward Elgar, 53 – 63, 1999.
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