According to two professors, many customer loyalty programs aren't boosting marketing share as intended because most retailers adopt a one-size-fits-all approach. They argue that product discounts aren't changing the long-term buying behavior in shoppers who value things like personalized service, convenience or shopping pleasure more.
Writing in The Wall Street Journal, Professors Lars Meyer-Waarden of the University of Toulouse III-Paul Sabatier in Toulouse, France, and Christophe Benavent of the University of Paris X-Nanterre argued that customers buying on price promotion would likely revert back to their regular brands or buying habits shortly afterward. At best, only a temporary change in sales and market share results.
The professors also said loyalty programs often aren't attracting new customers. In researching grocery stores, they found that 88 percent of loyalty card holders were clients of the store two years before joining the program. The rewards are often not compelling enough to attract many new customers or the proliferation of programs has made them less unique.
Not surprisingly, the professors argued that retailers should focus on providing customers with more "individualized rewards, based on what they value." As such, the scholars identified five different purchase motivations in surveying shoppers in France from 2005 to 2007:
- An economic motivation: the main goal is to save money;
- A hedonistic motivation: the aim is to feel pleasure;
- A routine-loyal/risk-avoiding motivation: the goal is to reduce the risk of being disappointed by a purchase by remaining loyal to a favorite brand or store;
- A relational motivation: buyers seek to establish a relationship with a store or its staff and be recognized as a privileged client;
- A functional motivation: the aim is to decrease the time and effort devoted to making purchases.
The professors noted that companies could use customers' ages, incomes, sex and other factors to draw general conclusions about what drives purchases. In grocery stores, for example, younger customers generally tend to be economical, but also hedonistic. Older clients with higher incomes tend to be relational and routine-loyal consumers but also functional ones. Low-income consumers are usually economically orientated, while women are more hedonistic. Men, especially executives, generally are more functional.
Motivations can vary, depending on what's being bought. For example, a functional consumer in a grocery store might be hedonistic in a clothing store.
After grouping customers this way, rewards can be better tailored based on purchase motivations.
The professors concluded, "Collecting and analyzing this data would allow companies to identify the customers they consider most important and target them with appropriate rewards offers, increasing the likelihood of retaining their patronage and capturing a greater share of consumer dollars overall."
Discussion Questions: Do you agree that many customer loyalty programs are largely unproductive due to a one-size-fits-all approach? What are the opportunities and challenges in driving rewards programs around individuals' purchasing motivations?