Loyalty programs have become increasingly popular in recent years. In this exercise, you just need to decide whether a large (and fictitious) retail chain should implement a similar program. To help you decide, below is an excerpt from one of their manager’s meetings discussing the proposal.
ACTIVITY/TASK
Larry:
I think that it’s important that we introduce a major loyalty program, in order to match the widespread success of other programs. It must be a key decision factor for consumers, particularly when they make a major purchase.
Olaf:
OK, there might be some consumers who behave like that, but the cost of setting up such as scheme and then maintaining and promoting it is quite substantial – I just can’t see how we can make a positive return on the program.
Yvonne:
But there should be some financial return. It should lead to greater customer loyalty over time – and in the long-term we should see a gradual increase in our market share.
Anita:
That depends what our other competitors do in the long-term as well. I mean if every one copies our scheme and other successful schemes, then we end up with the same market share while having to maintain an expensive loyalty scheme.
Lionel:
Sure, the scheme itself is expensive, but let’s also consider the potential financial off-sets. For example, instead of offering discounts, we could simply offer bonus loyalty points.
Therese:
That’s a possible benefit. But a discount applies to every one – it may even bring non-customers into the store, whereas bonus loyalty points probably only really appeals to our already loyal heavy users.
Yasmin:
OK fair point, so let’s look at the non-financial benefits instead. Surely we will gain an incredible amount of data on customer behavior – we’ll know who buys what and when. That’s going to be enormously valuable in our merchandising and promotional planning.
Paula:
There is probably good information available. But that also comes at a cost – of trained staff and suitable software.
Ronnie:
Well obviously there are pros and cons associated with this decision. But my main concern that this is a decision that we can’t really walk away from. I mean, once we go down that track, we would face a significant customer backlash if ever tried to withdraw it.
QUESTIONS
- What the arguments ‘for’ introducing the program?
- What the arguments ‘against’ introducing the program?
- Would you decide to introduce the program? Why/why not?