A better way to design loyalty programs

The US retail industry seems headed toward a zero‐sum game, a place where growth comes from taking customers away from competitors. This paper aims to present three steps to reduce the risk of defection of customers.

Despite the widespread prevalence of loyalty programs in the retail industry, customer defection risk within the industry remains high. Research shows that 85 percent of the “loyal” customers are willing to shop elsewhere if properly enticed. In response, some retailers have adjusted their loyalty programs to align them better with what they believe matters most to their target customers.

The paper reveals that there are three key steps to achieving an effective loyalty program.

In the summer of 2007, Accenture conducted ten independent but related surveys to assess behavioral loyalty of US retail customers in specific retail product categories (that is, retail segment markets). The ten surveys were conducted online simultaneously and were administered by a third‐party research vendor.

The paper offers this checklist for managers: align loyalty strategy with what matters most to target customers; recognize that price only buys volume but service earns continued loyalty; and use your loyalty strategy as both a defensive and an offensive weapon.

All loyalty programs are not equally effective. Retailers that ensure that their loyalty strategy is truly customer‐centric and use this strategy to both retain and acquire loyal customers will be the winners in retail's zero‐sum growth game.