Has the Amount of Choice on the Internet Ended the Use of Customer Loyalty Programs?

Is brand loyalty a quaint notion and an old-fashioned one at that, in a business world where customers defect at the click of a mouse and shopping bots scour the databases and sites looking for better deals? The big question retailers worldwide are asking is whether the amount of choice on the Internet has ended the use of customer loyalty programs. The faceless anonymity of Internet as an international marketplace makes many strategists feel loyalty must be on the verge of extinction. This is incorrect, however. Customer loyalty may have undergone a change, but it is present and alive.

Customer Loyalty in an E-Commerce World

Chief executives of leading brands from Dell’s Michael Dell to eBay’s Meg Whitman and Vanguard’s Jack Brennan value customer retention even now and consider customer loyalty initiatives to be vital to the success of their online operations. In the internet age, loyalty online is an economic necessity, in fact. The reason for this should be obvious. Acquiring customers online is expensive and unless customers stick around or make repeat purchases across the years, profits remain questionable.

This is why customer loyalty programs are a competitive necessity in nearly every industry, with companies increasingly harnessing the potential of the World Wide Web to create awesome value for customers. In fact, customer loyalty is the key to locking in a profitable sales relationship, at the cost of slow-thinking rivals. Without the bond of loyalty, even the most well meaning business model will fail miserably, more so in the digital age.

Bain and Company, for example, found evidence contrary to the common perspective that web customers are fickle by nature and go to the next business idea in a flash. The researchers at Bain & Co actually found that the modern corporate ecosystem and the internet marketplace is a sticky space, even in B2B or B2B transactions. Most customers exhibit a clear tendency towards brand loyalty and customer retention programs used correctly reinforce this inherent loyalty. If customers are not able to gain the profits from their existing customers, they will face a dismal future, even in the internet era.

New economy gurus may have argued that Internet marketplaces have overturned the old rules of business, but it remains valuable to retain customers and evince brand loyalty even today. The only difference is loyalty is now about earning the right kind of customers. Your brand needs to deliver a superior experience consistency so clients would do business with you. In fact, researchers have found raising customer retention rates by as little as 5 percent raises profits by 25 to 95 percent.

The Rise of Brand Advocacy

Along with purchasing more, even in the present age, loyal customers refer new clients to a retailer, providing another rich source of profits. Referrals are lucrative, more so with the advent of the internet as this amplifies word-of-mouth publicity. Online customers use mail to broadcast recommendations for desired websites to friends and family members.

Referred customers also cost less to acquire so they generate profits much earlier in the customer life cycle. For example, WSJ documented how eBay is spending less than USD 10 to acquire new customers through referrals! Thanks to the internet, eBay is driven by word of mouth and has found the cost of sustaining referrals is even low. The implication is clear for the sceptics: You cannot generate long term profits unless customer loyalty programs are in place.