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"Loyalty Is Expensive"
Recently a colleague at a promo agency called when his agency was pitching concepts to a client and he saw a loyalty opportunity. After a few minutes of discussing the opportunity, he lamented that "loyalty is expensive." It was one of those comments that reflected a very traditional but all too common perspective - focusing on the "cost" or expense of marketing, rather than the top (and bottom) line impact: incremental revenue and profit.
Describing loyalty as expensive is a bit like saying that cars are expensive. Sure it's cheaper to take the bus (mass transit), but that assumes that it will get you to where you're trying to go, on time and with relatively little inconvenience. The bus gets "expensive" too if you're late and miss an appointment, if you have to stand, or especially if your origin and destination aren't anywhere near the bus route and you need a ride to get there!
Loyalty marketing can answer some very explicit and precise questions. It can tell a company who its customers are as well as when, how often and what they buy. More importantly, it can allow a company to directly address (i.e., communicate) directly with its customers and get them to buy things.
For marketers, loyalty is more like a car. The unfortunate reality is that not everyone likes to drive or can afford a car. It's a lot more expensive than taking the bus or the subway but (unless you live in New York City) it's much more practical and gets you to exactly where you want to go, rather than just in a general area.
So yes, compared to other marketing initiatives and disciplines, loyalty is expensive. Like other certain other expensive things in life, it is worth it, as like so many other things, you get what you pay for.
Advertising, which still commands the bulk of marketing spending and was over $230 Billion for 2007, is only now being measured in terms of actual sales. In fact last week Ad Age reported that (alas) a definitive study linking TV advertising to actual sales was being undertaken "to answer advertising's million-dollar question: Do TV ads make consumers go out and buy products?"
The value of loyalty marketing is driven by a number of things, including certainty (i.e., defined risk) and the outcome, which, when done right, is directly measurable revenue and profit -- with highly mitigated risk. Unlike acquisition-oriented direct marketing, advertising or even most promotional marketing, loyalty is an investment in the means to talk with your customers for a long time. It's what makes relationship marketing not only possible, but more effective.
The metrics for loyalty are unlike most other marketing disciplines, which tend to deal in cost per thousand impressions (again, mass transit...or marketing) versus metrics like customer profitability, incremental revenue or, at a basic level, cost per incremental sales dollar. Yes loyalty is about selling things - usually more things to more people more often. And that should command a premium.
Yes, Loyalty programs can be very expensive. But expensive is a relative
term. If I get $1000 in additional revenue for $50 in marketing expense,
unless I’m in a really low margin business that’s a pretty good deal