Peter Guidi's Blog

Customer Engagement; network effects and building long term customer value using a loyalty platform.

In Coalition Loyalty, Convenience Store, loyalty, Platforms on November 10, 2010 at 12:47 am

The need for customer engagement in retail business is critical to effective marketing programs. Societal changes in the way information and communication is received have diminished the ability of traditional “Top Down” marketing strategies to reach the consumer. Media fragmentation and smaller audiences have reduced the effectiveness of mass; “interrupt and repeat”, newspaper and other print media advertising models. Easier access to information about retailers, products and brands has increased consumers’ choice. The internet and emerging social media along with decreasing brand loyalty and lower entry barriers have increased competition. New products and services reach consumers rapidly bypassing traditional sales and distribution channels. Mass-market discounter’s makes customer loyalty hard to achieve as retailers fight to capture a share of the consumer’s wallet by selling at lowest possible profit margin.

Retailers can avoid the “rush to the bottom” by focusing on “Customer Engagement”. Customer Engagement is about strengthening the emotional and psychological affinity a customer has with a retailer. Consumer loyalty is the best measure of current and future customer purchasing behavior. The most effective way to increase a consumer’s engagement with a retailer is by stimulating the consumer’s loyalty. Retailers can change the consumer engagement paradigm by utilizing a loyalty platform to create and leverage “network effects” to drive affinity.

Customer Engagement typically refers to the engagement of customers with a retailer rather than a brand; a loyalty platform can change that paradigm. When retailers add vendor supported incentives to a loyalty program, the program develops network effects. Network Effects are in play when consumer’s access brand (and retailer) supported benefits through the platform. The retailer, who owns the platform, experiences the value of the network effects when consumers shop in their store. Proprietary loyalty programs are closed loop platforms that leverage network effects to drive customer engagement. Coalition point based programs like “Air Miles” is an example of an open-loop loyalty program that exhibit network effects. Like all platforms, loyalty programs require two different parties to adopt the network to be viable; in this case it is either the vendor or retailer offering incentive on one side of the loyalty platform with the consumer and their desire to enjoy the incentive on the other side.

Loyalty platforms are the tool retailers can use to create the customer engagement needed to compete and win in this new social, technological consumer market. Creating an engaging dialogue with consumers and motivating their loyalty with the retailer is the key to driving both sales and margin. (http://www.linkedin.com/in/peterguidi)

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