Discount/Low Cost And Customer Relationship Management: Ikea's Case Study

Customer relationship management and low cost business seems to be unlikely to coexist. Nevertheless, I wanted to share with you a thought I had once I went to an Ikea store.

Indeed, Ikea sets its success on its low cost strategy. They have been able for years now to gain market shares by proposing furnitures at the lowest price. Most of the time people make fun of those furnitures which you have to assemble. But when Ikea has been funded, it invented this way to retail furnitures, and now, it became almost like the standard of the business.

How to approach customer relationship management in a low cost business is an uneasy task. Low cost implies you to look after any kind of unnecessary expenses, and by doing so, you are not supposed to have any kind of mergins which would allow one company to proposes vouchers. Therefore, the traditionnal approach of CRM which is to give discounts to loyal customers as a reward is not possible.

Rather than on focusing on giving rewards out, which is not really what assure customers' loyalty, low cost firms need to set up a partnership with its customers. This is what Ikea did, by explaining the whole philosophy behind its model. 

The company agrees to keep its prices low by cutting all kinds of non necessary costs, and the customer remain loyal because it finds what it is looking for: affordable products.

Also, on the other hand, the customer agrees to have a limited service, to assemble by himself its furniture, and so on.

Most of the time companies in need of securing market shares are luring on customer relationship management strategies, and are looking for reward based strategies, which may not always be the best way, as it can become very expensive. Ikea focused on its philosophy, delivering what the customer is expecting them to deliver, and then secures customer loyalty.

Customer Relationship Management Strategy: Does The Loyalty Card Has A Value?

There is a lot of innovation regarding loyalty reward programs. This tool remains one of the most appealing CRM project, even though new kind of CRM has appeared with new media. At the beginning, one of the main component of this kind of CRM was the famous loyalty card, which was the symbol of the relationship established between one customer and a brand.

Now the new era of customer relationship management implies to set mobile strategies. Indeed, mobile phones thanks to fast technology improvement have become the best tool to be on customer’s at all time.

Thanks to mobile loyalty reward programs, you may propose to customers more added value than a simple plastic card: you may access your points information, promotions, special features, tools to help you buy more.

Now the thing is that for some people, or at least some marketing directors, the loyalty card has steal a value: An emotional device which marks the relationship between the customer and the brand. With mobile phones, you may have several loyalty cards in the same handheld. But there is no challenge to become one of those card that customers are proud of owning in their wallet. I remember how proud people were to be part of the club Fnac program. They feld somekind of elite, due to the fact they were loyal customers to a retail which was considered as the best in the culture industry.

But to be honest, there is a very few number of companies that could actually set a premium loyalty reward programs which would be rewarding enough to get such a success. Hence I believe that the loyalty card, as we have known it, is on its way to vanish.

What do you think about it? I’d be delighted to share with you on the topic.

Loyalty Progams To Boost Word Of Mouth

There is a link between loyalty programs and the ability of one company to buzz. That is the result of a Colloquy study, which "Reveals Reward Program Members 70% More Likely to be Word-of-Mouth Champions than Non-Members".

Here are the key results of that study:

• Reward program members are 70% more likely to be WOM champions (defined as customers who are “actively recommending” a product, service or brand) than the general population;
• 55% of reward program members are self-described WOM champions;
• Only 32% of non-reward program members are self-described WOM champions;
• 68% of WOM champions in reward programs will recommend a program sponsor’s brand within a year;
• Actively participating reward program members are over three times more likely to be WOM champions;
• Reward program members who have redeemed for experiential rewards are 30% more likely to be WOM champions than those who have redeemed for discounts.

Top Five Reasons Consumers Talk, Blog, Email & Post Info on Their Favorite Brands

The COLLOQUY research also examined the motivations of WOM champions—asking why they engaged in WOM activity regarding their favorite products and brands and what categories of offers and information they were most likely to pass along to others within their networks. The top five motivations of WOM champions were:

— To tell manufacturers what I think..........	73%
— To get smart about products/services........	68%
— To be the first to discover new items.......	68%
— To get free product samples.................	63%
— To share my opinion with others.............	61%

Hence, word of mouth is driven by opinion leaders and loyal customers. Therefore, if one company owns a powerful loyalty program, which has a large customer data base, and active members, it will be more likely it could leverage it for buzz marketing purpose.

There is a common statement that social media would help companies to find new leads, because loyal customers will spread the word. This study actually demonstrate it.

Now, if a company own a great loyalty program, that doesn't imply its community management and/or social media strategy will be a success. Nevertheless, it owns a great competitive advantage to stand out of the competition.

Customer relationship management (CRM) aims to leverage existing customers to expand business, especially through cross selling and upselling, but thanks to new social media, it could also imply to get new prospects thanks to its own customers, as a referral marketing strategy would.

Very interesting results. Very inspiring.

Customer Loyalty Shifting From Brands To Retailers

Customer loyalty has always been a hot CRM topic. Thus, the main focus of a CRM strategy is to build a strong customer lifetime value, capturing its loyalty, in order to insure larger cashflow from this specific customer.

Brands have always been great in marketing, and retailers, kind of the followers. In the category management field, which aims for both the brands and retailers to collaborate to enhance departments performances, brands have always been sort of the provider of customer insight, which would ultimately lead to customer loyalty.

Now, based on years of studying people's shopping habits, Hartman Group's researchers predict consumer loyalty is shifting from products and brands to retailers, particularly those that offer shoppers an experience rather than just goods.

That is exactly what I was exposing you not so long ago, about customer experience marketing.

"People don't relate to brands in the same way they used to when there weren't that many products to choose from," said Hartman Senior Vice President Michelle Barry. "Capturing the attention of the consumer requires different tactics, getting a lot more intimate and experiential."

Customer experience aims to bond with customers, and as the retailer can be close to customer's daily life, it is the best placed to get valuable insight, and hence, create customer loyalty. Therefore, even though customer experience improvement effort might be difficult to estimate in term of return on investment, it is indeed a valuable asset, which will create customer loyalty and provide a great competitive advantage.

The Starbucks Example
Starbucks is the best example of how you could turn a classic business into a great customer experience that will drive high revenues. "Starbucks took a tired product category and transformed it into an entire world," he said. "Imagine if someone had walked into Folgers and said, 'We have a new business model for you: Open thousands of stores around the world based around the espresso bean.' It's hard to get somebody to wrap their head around what could be."

It also explains the reason why French retailers are so eager to develop private labels, to create differenciation with the competition.

May Customer Loyalty Be A Bad Thing?

CRM programs aim most of the time to create customer loyalty, in order to increase the benefits/customers. In fact, customer loyalty, in a stable market, has been thought as one of the only way to seek growth, as winning marketshares over competition might be costly.

Businessweek explains us that customer loyalty can be a bad thing at some point, especially in the b-to-b market. Indeed, in order to establish a strong relationship, companies provide to its more loyal customers extra services and better promotions than the average ones. And this fact is more percievable in this economic downturn.

" In this down economy, customers in both B-to-B and B-to-C settings are naturally much more sensitive to economic issues. Furthermore, companies in B-to-B relationships are often more reliant on their vendor partners to help them shoulder this burden. There is nothing inherently wrong with this, and we as managers need to recognize that our job is to meet our customers' needs if we are to deserve their loyalty.

But the simple solution to improving customer loyalty in a down market is to offer price deals. In fact, firms that track their customer loyalty can be guaranteed that loyalty scores will increase with each substantial decrease in price all things being equal.

But that's a bad loyalty strategy. No, this doesn't mean we should not find ways to be more efficient so that we can pass cost savings on to our customers. But price-driven loyalty is always the lowest form of loyalty. It means that we aren't offering differentiated value to our customers."

Studies must be undertaken in order to see if customer relationship management efforts, in terms of extra services provided, remains profitable, compare to other customers which would not qualify for these types of programs. Customer loyalty of course must be managed, but in fact, it is not really customer loyalty that might be bad, but more the bid you could give them.