Thursday, April 23, 2009

Leaders Build Loyalty Into Their Business Model

As growth becomes elusive, retailers are hunkering down to hold onto the customers they have. A recent Aberdeen Group report shows that "customer loyalty programs and similar relationship marketing initiatives are some of the most critical factors that are impacting retailers’ sales and customer retention performance under these current difficult market conditions."

Many store-based retailers have bolted loyalty programs onto their businesses, using points based systems, discounting and giveaways to drive repeat business. Meanwhile, leading e-tailers have created business models that make it so appealing to do business with them that it is too hard or too much bother for customers to go elsewhere. By offering extraordinary service, convenience, quality, or value, these brands have found compelling ways to cement their relationship with their customers and overcome purely price-based competition.

Zappos is a great example I wrote about earlier this week.

Amazon Prime is another great example of an e-tailer achieving loyalty without points or merchandise discounts. In fact, customers pay Amazon $79/year to enjoy unlimited "free" 2-day shipping, discounted upgrades to 1-day shipping and no minimum order size. We buy more from Amazon than any other ecommerce site, and Amazon Prime is the reason. That’s loyalty!

Shutterfly is attempting to increase customer retention by capitalizing on recent decisions by competitors, land-based operators Snapfish and Kodak. Both have announced they will no longer store pictures for customers who have not purchased merchandise from their sites recently. Shutterfly’s CEO, Jeffrey Housenbold, used those announcements as an opportunity to reach out to customers past and present with albums stored on the Shutterfly site and reassure us via email that there will be no forced deletion on his site. Our photos are safe, regardless of what or when we buy. Of course, the hope is that the convenience of having digital photos all in once place will lead to reliance on that site for prints, cards, etc.

Is it a coincidence that all of these examples are e-tailers? I don’t think so. The Aberdeen report points out that brick and mortar retailers are still worried about getting the plumbing right — only 37 percent of store-based retailers surveyed reported that customers can join their loyalty program via the POS system in stores. Meanwhile, e-tailers are free to innovate their business — and loyalty — models.

1 comment:

Judy Hopelain said...

Actually, these days, I suspect people are repricing their time as they try to make their dollars go farther. I worry how relevant positionings based on convenience and time savings are vs. hard dollar savings.