The Utter Truth About the Effectiveness of CRM and Customer Loyalty

The obsession with textbook segmentation, especially on demographic data, is another surprisingly popular but unavailing attempt in CRM. Psychological age does not necessarily equal to chronological age, let’s admit it: We all want to stay young forever (physically, psychologically and socially!) and lie about our ages. What matters is how we feel, act, and behave. And this applies to our purchase behavior, motivated by one of the five need levels as explained in Maslow's hierarchy of needs. Take headphone as an example, it’s more than a device for listening to music, it’s something that enhances self-esteem and brings pleasure by wearing a trend. A range of headphone colors makes it easy to show off personal style under different use cases. To effectively make use of CRM we need AI-powered tools to dig out useful patterns from sales, emails, social media streams and other sources for behavioral tracing throughout the journey.

When it comes to customer retention, marketers speak about loyalty program. But when it comes to profitability, it’s important to see whether the type of loyalty program is right for your business. One very common and prevalent type is bonus point scheme (e.g. bonus points rewards, stamp card) but it’s not necessarily effective. The biggest issue is the fact that different products have varying price and cost structure. If a consumer buys a bottle of water for HK$10, will you as a retail store operator give out 10 bonus points? Probably. But what if a consumer buys an auto for HK $500K, will you as the auto reseller with a sheer profit margin give out 500K bonus points? Probably not. Instead, you will design a complex point conversion for different products, especially for a conglomerate having a stake in both retail and auto business in the above case.

Now back to the basics, do you think the customer would understand and remember the point conversion rate? Be honest, do you remember your own airline mileage scheme and supermarket point scheme? If we ourselves cannot understand or remember the point scheme, how can it attract our customers for repeat purchase with brand loyalty? If a company sells products with similar point cost structure, point scheme can function quite well. If not, it can turn out quite challenging.

Lastly, loyalty program is just a part of the comprehensive customer relationship strategy. Loyalty won’t be created immediately after the launch of a rewards program, neither would a long-term relationship be established once CRM software is installed.