Published by Harshil Shah on
“Well-designed programmes can create competitive advantage by influencing customer behaviours, reducing customer churn, and ultimately creating real customer loyalty and advocacy.”
It is no secret that customer loyalty programmes can turn transactions into long term customer relationships. Since the birth of modern loyalty programmes in the late 1900s, schemes have been designed and developed to entice customers to return with some programmes valued at eye-watering levels in the US$billions. Well-designed programmes can create competitive advantage by influencing customer behaviours, reducing customer churn by creating ‘stickiness’ and ultimately creating real customer loyalty and advocacy.
In the UK, 96% of the adult population currently participate in some form of loyalty programme while almost 75% of UK retailers offer a loyalty scheme. Research has shown that in south-east Asia, consumers are more likely to be enticed by loyalty offers than the rest of the world with 92% and 94% of consumers in Thailand and Vietnam respectively stating that they are more likely to spend at stores with loyalty programmes. But how can actuarial techniques create insights for customer loyalty programmes?
There are three key ways in which actuarial consultants can help clients build brand value and customer loyalty:
“Since loyalty programme points have financial value, each member account is similar to a bank account which comes with significant inherent risks to be managed.”
Since loyalty programme points have financial value, each member account is similar to a bank account which comes with significant inherent risks to be managed. These risks should not deter businesses from having loyalty programmes, but they should be proactively managed as an important part of any successful loyalty programme.
Overall, it is clear that customer loyalty programmes are major investments but worthwhile as they can act as a sustainable differentiator for businesses. While the data, models and valuation around customer demographic, behaviours and loyalty is complex, time dependent and uncertain, loyalty programmes can be optimised with the help of actuarial techniques. Actuaries are experts in extracting, analysing and modelling large data sets, combining these with qualitative information to form real insights that inform decisions and drive practical actions for clients.
Customer loyalty is a long-term game, which is based firmly on trust. Should a client decide to implement or review their current programmes, actuarial techniques can be used to ensure that the changes made are effective and correct. This combined with proportionate, proactive management of the risks arising from the loyalty programme, will help sustain trust and ensure ongoing success.