Marketing strategies are a key focal point for new product development (NPD) teams during the later stages of development (commercialization and launch). Market research methods include testing the new product with a limited customer base at the same time as testing the advertising campaigns and positioning statements. New products are typically designed to serve both existing and new customers.
In the case of existing customers, a firm may use existing distribution channels to reach the customer and to inform him/her of the new product. Customer loyalty programs are one way to inform existing customers of new offerings and to target increased sales in a product or brand category.
What is a Loyalty Program?
Loyalty programs are marketing programs designed to generate increased sales revenue and profit for a company by offering rewards to customer who make repeat purchases. In a B2B situation, for instance, a loyalty program might offer free shipping or discounted prices through contractual agreements that assure long-term buyer/seller relationships. In a B2C situation, loyalty programs are instituted as frequent flyer programs, frequent shopper cards, points per purchase, and the like.
As an example, many of us carry a grocery store frequent shopper card. Items are priced at a small reduction for customers using the grocery chain’s shopper card. Airlines and hotel encourage repeat purchases through loyalty programs in which customers accumulate reward points by using their exclusive reservations systems. Reward points can be redeemed for free flights or free hotel stays in the future.
Goals of Loyalty Programs
The goal of a loyalty program is, of course, to generate loyalty among customers to yield a competitive advantage. It is often cited that the cost of new customer acquisition is significantly higher (up to 10X) than maintaining a strong relationship with an existing customer. Thus, one goal of a loyalty program is to decrease marketing costs by encouraging increased purchases by existing customers.
A second objective of a loyalty program is to encourage a greater number and variety of purchases by repeat customers. This is accomplished by up-selling or cross-selling. As an example, I worked in the children’s department of a department store while I was in college. The end-user was rarely the purchaser, and, in fact, many grandmothers did more shopping than moms and dads! My boss constantly prodded the sales staff to push cross-selling opportunities. During the check-out transaction, we were supposed to ask each customer if they needed a belt or sock with their purchase of shirts, pants, or dresses. These cross-selling opportunities often involved high margin products.
At the department store, I did encounter a lot of repeat purchasers. Many of these grandmothers were exhibiting behavioral loyalty. That is, they made the purchased based on convenience or price. Behavioral loyalty is observed by a customer making similar, routine purchases at the same store over and over again.
In contrast to behavioral loyalty is attitudinal loyalty. A customer exhibiting attitudinal loyalty is a true believer in the company, brand, or product. They choose the product because of a preference for its features, benefits, and/or quality. True attitudinal loyalty results in customer satisfaction and behavioral loyalty manifested in repeat purchases.
Marketing New Products
A new product is offered to customers with both behavioral or attitudinal loyalty. However, the marketing approach should be different since the customer relationship with the firm is different in these two situations. Customers with behavioral loyalty are treated transactionally in an attempt to garner profits. Hard-selling tactics, such as direct mail and frequent coupon delivery, are effective to promote a new product with this group of customers.
On the other hand, the relationship is more complex with a customer who has attitudinal loyalty and the firm does not want to risk that relationship by over-promotion or with hard-selling tactics. These customers require a gentle introduction to new products and should be made to feel special in the marketing campaign.
For example, a grocery store may offer a special event with wine and cheese sampling to a target segment of frequent shoppers with attitudinal loyalty. The new product will be introduced as part of the event, but the marketing approach does not overshadow the recognition of the customer relationship. The consumer feels special to be invited to the exclusive event in the first place. Discount coupons (encouraging behavioral loyalty) can be used after the event to encourage a new purchase, but only for a limited time. It is more important to maintain the relationship than push a product.
New Product Marketing with Loyalty Programs
The fundamental concept of marketing for a new product is to inform potential customers of the benefits and value of the new product. Existing customers, with a lower cost to identify and segment, can be targeted for new product introduction through loyalty and reward programs. Companies must, however, differentiate between those customers with behavioral loyalty and those with a deep, lasting relationship that goes beyond the transaction. Customers with attitudinal loyalty support and evangelize the brand or firm. Marketing campaigns adjust from hard-selling tactics to continued relationship building as customers migrate from behavioral to attitudinal loyalty.
A great book on customer loyalty programs is Customer Relationship Management by V. Kumar and Werner Reinartz. (affiliate link)
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