The dynamic and competitive business environment has urged companies to pay considerable emphasis on building close ties with their customers and nurturing long-term relationships. With high competitions, customers become more able to switch to other competitors. Although many companies implemented marketing programmes to retain customers and extend the relationships with them, some of these marketing programmes are cost-based, which basically rely on financial incentives and/or financial constrains. These activities have in some instances shown effectiveness in attracting and keeping customers, however, they also caused detrimental effects on the resulting rapport.
It has been argued that the vast majority of loyalty programmes do not contribute to increasing sales. For instance, in a retail setting, consumers who have a loyalty card do not seem to end up spending much more than those who do not. Many frequent shoppers decide to sign up for the programme because they are rewarded for doing something they would do anyway; it is likely a large percentage of loyalty card customers, perhaps the vast majority, are accumulating points or discounts without having to change their purchasing behaviour from before they were members (Keiningham et al. 2005).
Loyalty programmes are expensive to create and maintain and in many instances can result in disastrous effects on investment. The cost to produce loyalty programmes is high and the probability to cover this cost looks bleak in many circumstances. According to Keiningham et al. (2005), a study by McKinsey & Company found in the telecoms industry that companies realised that they hold many customers in their profiles, only as hostages and not
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equal to customer loyalty. Many of the loyalty programmes are indiscriminate in their targeting of customers, creating bonds with the wrong customers which results in the majority of customers not providing an acceptable return on investment.
The dynamic and competitive business environment has urged companies to pay considerable emphasis on building close ties with their customers and nurturing long-term relationships. With high competitions, customers become more able to switch to other competitors. Although many companies implemented marketing programmes to retain customers and extend the relationships with them, some of these marketing programmes are cost-based, which basically rely on financial incentives and/or financial constrains. These activities have in some instances shown effectiveness in attracting and keeping customers, however, they also caused detrimental effects on the resulting rapport.
It has been argued that the vast majority of loyalty programmes do not contribute to increasing sales. For instance, in a retail setting, consumers who have a loyalty card do not seem to end up spending much more than those who do not. Many frequent shoppers decide to sign up for the programme because they are rewarded for doing something they would do anyway; it is likely a large percentage of loyalty card customers, perhaps the vast majority, are accumulating points or discounts without having to change their purchasing behaviour from before they were members (Keiningham et al. 2005).
Loyalty programmes are expensive to create and maintain and in many instances can result in disastrous effects on investment. The cost to produce loyalty programmes is high and the probability to cover this cost looks bleak in many circumstances. According to Keiningham et al. (2005), a study by McKinsey & Company found in the telecoms industry that companies realised that they hold many customers in their profiles, only as hostages and not
22
equal to customer loyalty. Many of the loyalty programmes are indiscriminate in their targeting of customers, creating bonds with the wrong customers which results in the majority of customers not providing an acceptable return on investment.
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