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Loyalty. Most companies waste its potential

Lojalność. Większość firm marnuje jej potencjał

For years it was said that Poles were disloyal. They buy where it is cheaper. What does the situation look like today?
In 2022, an ASM study commissioned by the Teraz Polska Foundation showed that quality and price occupy the highest places (80 and 76%, respectively). This year's Strategy& (PWC) report shows that price is still an important element. And there's nothing strange about it. On the one hand, price is the most direct reflection of value – information that does not require any effort to process it. On the other hand, we are very pragmatic. We are more loyal than before, but also much more demanding. If there is no added value for us, we make decisions based on price. Let us also remember that loyalty is an extremely broad concept that varies significantly depending on the market segment and customer segment.

Doesn't the fact that we have all possible loyalty cards on our phone restore the "pre" loyalty state?
It might seem so, and we asked this question for the first time in 2008, when analyzing participation in competitive loyalty programs. It turns out that even if we belong to several directly competing programs, we still have the one in which we participate the most. In other words, we can buy from several suppliers, but we concentrate our purchases on "that one". However, the spread of programs means that they become a hygiene factor. In other words, the mere fact of having a program does not change the seller's competitive position. Polish consumers expect creativity and innovation in loyalty programs, as clearly indicated by the results of the Loyalty Insight 2023 Report, of which we are a content partner. 37% indicate that most programs are similar and therefore boring.

So who benefits more from loyalty – the network that gains data about our choices, or us – by gaining a discount?
Both sides benefit from loyalty. The customer's registration of the transaction is a kind of cost to the customer (I incur additional effort, I provide additional data) and to the network (system costs, price reduction costs, etc.). On the other hand, both the customer receives additional benefits (e.g. lower price) and the network (customer knowledge). Imagine a simple situation when I make purchases from my shopping list, and then after leaving the store I realize that there are additional products that I forgot about. So I go back to the store and buy again. From the checkout point of view, these will be two independent transactions, two separate shopping baskets. Today, this example can be much more complex: we buy from different locations of the same brand, sometimes traditionally, sometimes online. Without connecting these transactions, we have no way to get closer to the customer, we only observe the transactions.
However, what is important here is that the loyalty program does not offer automatic increases in the chain's sales per se, but only enables the creation of better strategies and taking better actions. In this sense, there is also parity of potential value here: the chain has the opportunity to create a higher margin, the customer has the opportunity to obtain a reward.

And can companies actually use this potential?
In most cases, unfortunately not. 90 percent companies spend time and costs on prize logistics and tax settlement. Only 10 percent is spent on analyzing data about customers, their choices and purchases. This is where the value of a loyalty program lies – in getting to know customers and their choices, which allows you to make business-wise and strategically accurate decisions about adapting the offer to customer expectations.

Personalization is indeed defined in all cases as a higher stage of loyalty. Will tailored shopping and prices soon become a reality?
Personalization is the result of market development and the resulting need for differentiation on the sales side. If I am able to offer personalization to my customers, I also increase the perceived value of what I offer. Today we have access to tools and technologies that allow personalization on a mass scale. In turn, tailor-made pricing, dynamic pricing, is a hot topic due to the potential to increase margins. The basic assumption is based on price maximization at the individual level. The combination of both elements – personalization (increasing the perceived value) and dynamic pricing (increasing the cost of acquiring this value) is a good business concept. However, its use is quite demanding.

Is it because the seller rarely receives a specific hint from the system about, for example, the customer's favorite snack that he or she usually buys?
Among others. Data is collected at a higher level and used to create aggregated analyses. The salesperson at the checkout does not have access to them and is actually the contact point. And he could approach the client with a recommendation that meets his expectations. And we must remember that depending on the culture, different things are treated as a distinction for the customer. In Poland, the highest type of appreciation is granting a discount, while in Middle Eastern countries – recognizing someone as a regular customer, a friend.

Suggestions based on your purchase history drive subsequent purchases. But is there a limit to this type of recommendation?
That's a very good question. To some extent, these tips are extremely beneficial for buyers (convenience) and sellers (higher sales). When operating on a large scale (many clients, many transactions), we use the so-called Big data and advanced analytical models. In addition, we have the ability to combine data with omnichannel, thanks to which we can create complex customer segmentations and more effective actions.
However, there is a limit (also for other types of recommendation bases) and it can be determined, for example, using the reactance theory. Research shows that an inverted "U" effect should be expected – to some extent, an increase in recommendations results in an increase in purchases. Once the saturation point is exceeded, the opposite effects occur – a decline in purchases.

Is the script of the conversation in which "do you collect points" an element without which the seller cannot let the customer leave the store?
He can release it, but he shouldn't. It is important to remember how much value comes from knowing the customer better and more precisely for the store. A loyalty program is a very good tool for building such knowledge about customers. Therefore, sellers should pay special attention to this. It remains to be considered whether collecting points is the right positioning in a specific situation. Perhaps “are you already a member of the customer club?” This offers the opportunity to build relationships with customers.

Should the script be changed when, for example, a famous person whom the seller recognizes approaches the cash register?
It is important to remember that a script is a script – a certain pattern of behavior intended for standard situations. However, when a well-known person or our friend enters the store, his or her sound should be modified to make it seem natural. We won't build loyalty on a conversation that sounds like it was being read by a robot.

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