Study on customer loyalty programs in Germany

• Customer loyalty is the most important target in the marketing mix
• Bonus schemes preferred
• Four success factors

Retaining profitable customers is seen by German companies as a key success factor, more important even than product quality and a slim cost structure. This was shown by the study "Customer loyalty programs in major German companies" conducted by Roland Berger Strategy Consultants that was presented in Munich today. According to the study, 61 percent of the companies surveyed have some experience with customer loyalty activities, and 54 percent of these prefer bonus schemes. But the majority of companies are unhappy with the implementation of these programs and see increasing need for investment. 64 percent of the respondents plan to intensify their customer loyalty efforts within the next year, more than 60 percent expect a budget increase for 2004, with 22 percent even expecting a hike of more than 20 percent. The study also shows that in order to be successful, customer loyalty programs must closely fit the company's strategic objectives, meet with comprehensive customer acceptance, must be integrated in the entire marketing mix, and require the continuous quantification of effects.

In this multi-industry study, Roland Berger Strategy Consultants included the Heads of Marketing of 82 German companies.

"Customer loyalty deservedly ranks top on the companies' agenda," says Kai Howaldt, Partner in the Marketing and Sales Competence Center at Roland Berger Strategy Consultants. "The principal focus should now be on effective implementation. This is where many companies are still giving away money and market share."

Almost all industries rate customer loyalty as the most important target variable in marketing. Bonus schemes top the list of preferred actions with 54 percent, followed by customer cards (36 percent), coupon schemes (32 percent), and customer clubs (28 percent). These results clearly reflect the trend toward customer-specific loyalty tools.

The number of customer cards is bound to increase further as well. The study forecasts that the number of cards, of which there are some 60 million at present, will rise to 100 million in Germany by 2007.

64 percent of the companies surveyed are planning to step up their customer retention efforts within the next 12 months. The majority intend to integrate additional partner companies into their loyalty program rather than use one single program. Multi-partner programs are thus the strong trend.

62 percent of the companies surveyed plan to increase their customer loyalty budgets in 2004, some 22 percent even foresee budget increases of more than 20 percent. This shows that even in times of tight cost control, many companies are prepared to significantly expand their customer loyalty programs.

Successful implementation of customer loyalty programs

In the past, the positive effects of customer loyalty actions on sales and profits fell considerably short of companies' expectations. The success of tools such as bonus schemes depends on four key factors:

The goals pursued in customer retention programs and the tools selected must closely match the company's strategic objectives. A mismatch can significantly limit success. The fit with the overall corporate strategy is the most important criterion when establishing the success of customer loyalty programs.

Actions must be tailored to closely fit customer requirements to gain comprehensive customer acceptance. This can be achieved by multi-partner programs offering attractive bonuses or by simpler program mechanisms based on collecting and redeeming points.

Customer loyalty programs should be an integral component of the marketing mix. This includes planning the accompanying advertising. Most importantly, however, the newly gathered data can be used to address customers individually and make personalized offers. Direct marketing as well as promotions and events may also give new impulses. This taps the full potential of customer retention programs.

Finally, the effectiveness of the actions must continuously be monitored through appropriate indicators.

"Overall strategic fit, high customer acceptance, and especially the integration into the overall marketing mix and the continuous quantification of effects determine the success of the customer loyalty program," says Kai Howaldt, adding, "Introducing, say, a bonus scheme, poses a complex management task for any company and requires significant investment. Such a step requires in-depth preparation and must be consistently implemented. Halfhearted approaches and experiments will not normally lead to success."