Building the business case

A loyalty programme can often require significant up-front investment.

Therefore, it’s common to justify expenditure with the prospect of a healthy uplift in customer acquisition. However, this may be misguided. A loyalty programme that focuses too heavily on customer recruitment with tempting introductory offers may deliver short-term results, yet detract from a cohesive, long-term loyalty strategy. ‘Quick fix’ campaigns can train customers to become ‘promotion junkies’ who are effectively disloyal because they only respond to incentives, rather than having a true affinity with the brand.

Not all customers have the potential to be loyal. Therefore, it’s important to focus on recruiting the right customers for the right proposition. It’s also important to identify the optimum return on investment (ROI) from a customer, over an acceptable time frame, that will justify the initial investment in the recruitment initiative. It’s like a marriage. After the honeymoon period is over, you need to work to make the relationship a success.

At LCUK we breed an air of optimism n almost everything that we do, but we are mindful of the fact that loyalty costs are a real and significant expense for any organisation that must be justified. Understanding the potential pitfalls of loyalty schemes gives us the advantage that we are able to construct realistic business models that predict the likely outcomes. Using classic sensitivity analysis, we work with our clients to build the financial model that will inform the senior management of an organisation about the likely return on investment. Our models are comprehensive and conservative confidence building tools that help non-marketing business leaders to believe in the potential of well thought through and effective loyalty strategies/schemes.

 

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23/05 2018
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