MCC Effects of Loyalty Programs on Value Perception Customer Relation Paper

1. I need to write 1-2 pages. I have attached a document.

This was taken from “Effects of Loyalty Programs on Value Perception, Program Loyalty, and Brand Loyalty”( pg 231)….posted in Documents

“To be successful, a loyalty program must target a valuable customer segment and discourage those customers who are less valuable. Under these conditions, it becomes self selecting and individually correcting program” – thoughts on how a Company can discourage a customer/potential customer that is less valuable? There is a reference that follows this – consider looking it up for insights.

2. Please comment on this in few lines:

a. Ever since the beginning of this class, it has been mentioned in every chapter and article that an important aspect to take into account when implementing a customer relationship management strategy is to invest in the right customers. In other words, to know which customer is valuable and deserves to be retained and which customer is less valuable and can be let go. As described in this week’s article, loyalty programs aim to establish a higher level of customer retention in profitable segments by providing more satisfaction and value to certain customers. In short, loyalty programs are designed to build customer loyalty by providing incentives to profitable customers!

Basically, “less is more” and it is important for companies building loyalty programs to let go on the wrong customer instead of wasting time and money in retaining unprofitable customers. However, in order to do so, it is crucial for companies to identify and distinguish unprofitable customers from profitable ones. Indeed, the best way to avoid unprofitable customers is to actually not take them onboard by leading accurate market research and market segment identifications. Otherwise, companies won’t even be able to move to the next step which is to actually discourage these less valuable customers if they fail to identify their invaluable customers. In order to recognize less valuable customers, companies/brands can use the “Framework Of Reward Schemes” among other tools such as customer lifetime value data, for example.

Once less valuable customers have been identified, there is several ways a company can discourage them:

• By buying as customer-oriented as possible. Indeed, if companies offer products that highly match customer’s expectations there’s a bigger chance that the company and its products attract the expected customers. In addition, as mentioned in the article, it would be a good way to create customer brand loyalty rather than customer program loyalty.
• By undundling offers. Companies can redesign their offers, and re-bundle different components with new prices. The non-interested customers would get filtered by this strategy. However, when using this strategy, companies must be careful not to lose valuable customers in the process.
• By increasing relational costs. Here, these invaluable customers would be offered lower service quality and less/no advantages. Basically, companies create the conditions to be dissatisfied customers and make them leave. Reputation-wise it may not be the best strategy, however, a reward program based on merit would be a great way to motivate valuable customers to become even more loyal. Some companies actually offer bigger and bigger discounts to customers spending a bigger amount of money on their products and that clearly results in a growth in customer loyalty.
• Companies can also go for a very drastic solution which is to inform these non valuable customers that they’ve been “dismissed”. It’s a strategy that Sprint Nextel used in 2007 simply using a letter.
  • I personally don’t think that this strategy is good for a brand’s reputation, especially in our age of interconnectivity and fast communication. What do you guys think?

To conclude with a debate: I think that, in some cases, invaluable customers can be transformed into valuable customers. Indeed, with the use of their data, feedback, a good retention strategy and the opportunities related to mass-customization, it might be possible to create value perception for an invaluable customer who would convert to the product/service offered and who would ultimately become a valuable customer. My concern here is that such a strategy would involve a lot of time and investment, but since retaining a customer is cheaper than earning new ones, it is worth asking your opinion! What do you guys think? Professor Cautillo, if you pass by this post, what do you think of this idea, is it realistic?

b. I found this thread question very interesting especially since I will be working at Verizon upon my graduation from Pace University. I am not familiar with this specific promotion of $99.00 for all channels for 3 years but I am familiar with the fact that Verizon does do quite a few of these types of promotions throughout the year. Before joining the Verizon team, I had a similar experience that I think you might find interesting before relating it back to the question of “should we be concerned about sales promotions possibly damaging a current relationship?”

Last year before working at Verizon I ran into the similar issue of feeling like I was paying way more than I should be for cable. Like professor did I called up and when they said they weren’t willing to change my rates I decided to drop Verizon and get Spectrum. Little did I know what a pain that ended up being. Even though I was paying less it was obvious this wasn’t as premium as a service as Verizon. I hated the user experience of Spectrum Cable(channel guide, layout, ease of finding products on on-demand, and not being able to pause my show unless I pay a premium fee) I also found it super that they were constantly trying to get me to spend more on upgrades like premium networks. I also lost some premium attributes that I got for free with Verizon that I didn’t even think about like Free Disney plus. Over time this added up, so I decided to switch back to Verizon because I rather pay a little more to get free add-ons and use a better product. My overall frustration with the new provider outweighed the premium cost of a premium provider like Verizon.

Bringing me back to the question that professor asked of “should we be concerned about sales promotions possibly damaging a current relationship?” In short yes, we absolutely should be aware of promotions that are damaging the current relationship, but we must also look on how we educate our customers if we provide a better product than competitors. For example, I was not aware of everything I was losing when I switched to Spectrum. Therefore, as marketers we should absolutely being trying to expand and attract new customers but simultaneously be looking to add promotions for existing customers as well (like free premium streaming services ex. Disney Plus) to make sure customers feel like they are getting the best value for what they are spending.