Join the club
In this age of mass affluence, creating brand loyalty has never been more challenging, says Premal Patel of American Express.
August 21, 2008 1:06 by kippreport
“I wouldn’t want to belong to any club that would have me as a member,” Groucho Marx famously remarked. The great comic actor was kidding, of course – but his claim is entirely relevant in today’s luxury marketing space, especially here in the Middle East.
We live in a new world of mass affluence, where more people have access to luxury goods and elite services than ever before. Yet reaching out to this fast-growing customer base, and retaining their loyalty, has never been more challenging – precisely because luxury is so much more accessible than it used to be.
Here in the Middle East, the number of high-net-worth individuals is currently increasing by 10 percent year on year. By the end of 2010, it’s expected that there will be more than 500,000 dollar millionaires in the region.
In the UAE, the number of millionaires grew by 12 percent last year, to reach 70,000. Think of it this way, and that figure is even more astonishing: Three out of every 200 UAE residents are millionaires. Today, the country ranks among the top five nations worldwide in terms of consumer purchasing power for luxury clothes and accessories. The luxury goods sector in Dubai alone is forecast to be worth a staggering $100 billion by the end of the decade.
That’s serious money, and a golden opportunity for premium businesses like American Express, which has seen Cardmember spend on luxury goods in the UAE increase 27 percent in the first five months of this year. That rise can partly be attributed to the overall economic growth of the country, but it is also a result of the efforts the company has made to build greater brand loyalty.
Every successful business, anywhere on earth, depends on such loyalty – and the benefit repeat customers provide to their bottom line. It’s a well-known fact that keeping existing customers is less expensive than acquiring new ones. Indeed, a 1990 study demonstrated that a 5 percent improvement in customer retention can cause an increase in profitability of between 25-85 percent, depending upon the industry. That increase is due not only to the lower costs associated with customer acquisition but also to the benefits accrued through referrals and advocacy. Happy customers tell their friends, associates and acquaintances about their experience – and that positive word of mouth translates into new business.
Frederick Reichheld, a management consultant and author of Loyalty Rules! and The Loyalty Effect, points out that American companies on average lose half their customers every five years and half their employees every four years. Here in the Middle East, and especially in the UAE, those figures are surely even higher – and a source of even greater concern.
According to Reichheld, companies that cultivate loyal customers, loyal employees and loyal investors consistently outperform their peers. “[Yet] too many companies have betrayed customers’ trust by rewarding disloyalty,” he points out. “For example, new customers get the best mobile phone deals while long-time customers pay top rates. Infrequent travelers get the lower advance ticket price, while frequent business travelers pay ridiculously higher fares. But that doesn’t mean customers won’t give their trust – and their business – to a company that really earns that trust.”
Born of this insight, loyalty marketing seeks to ensure that repeat customers are treated especially well. Consider that, as far back as 1929, US food company Betty Crocker introduced coupons that could be redeemed for items such as flatware. The coupons were printed on the outside of packages, and were meant to be cut out, saved and posted to the company in exchange for free knives, forks and spoons. Around the same time, S&H Green Stamps were introduced in the United States. The supermarkets, petrol stations and other shops that distributed the stamps bought them from S&H and gave them as bonuses to shoppers based on the dollar amount of a purchase. In turn, these stamps could be redeemed for houseware and other items.
Today, just about every company or brand seems to offer some form of loyalty program. Mass-market retailers, in particular, employ such programs to attract and retain customers and to gain valuable insights into consumer habits, generally offering token rewards in return. Retail banks, for instance, have been giving away free toaster ovens since time immemorial; more recently, supermarkets have begun offering special discounts to frequent shoppers. Airlines, of course, have long believed in the value of offering points or miles that can be later redeemed for free flights or upgrades.
While the aim of such programs is sometimes to collect valuable demographic data, forging a lasting connection between consumer and brand is the overriding goal. Which begs the question: How do you keep your customers happy, and keep them loyal to your brand? If everyone offers something for (nearly) nothing, how do you set your loyalty program apart?
The answer seems to be, especially in the luxury segment, by providing rewards that are unique and, very frequently, experiential; that provide not just material benefits that anyone can purchase, but also forge emotional connections. This is what today’s new affluent class is seeking most of all: intense moments of pleasure, joy or adventure; the delight of the truly new. Some of our card members globally, for example, have hired a private jet, enjoyed dinner with a Hollywood star, and attended a gourmet cooking course.
Which brings us back to Groucho Marx and the club he doesn’t want to join. In the olden days – when wealth was usually inherited, rather than made – high-net-worth individuals joined clubs mostly to keep others out. These days, the affluent are far more likely to start their own associations so they can fraternize with like-minded friends. They are even more likely to leave the club behind, and go to explore the wide world around them, that’s right on their doorstep, just waiting to be discovered.
Premal Patel is senior director of marketing at American Express Middle East & North Africa.
First seen in www.communicate.ae