Loyalty cards are not a guarantee of true customer satisfaction

Since the announcement of Tesco's reentry to the Irish marketplace there has been considerable focus the role of their customer loyalty scheme in their recent success in the United Kingdom.

In the past 18 months they have stolen the lead in the British market from Sainsbury. Shell's customer loyalty scheme is also at the centre of a development which, it is claimed, could revolutionise high street shopping. Named the Smart scheme, this will link a consortium of retailers, including Dixons, Currys, Victoria Wine, Vision Express and John Menzies, with the oil company's loyalty scheme using a microchip smart card.

And it appears Tesco's great rival, Sainsbury, is in talks with Shell to take part in its scheme.

In Ireland we are very familiar with loyalty schemes such as Superquinn's and the extension of this into the Superclub concept. The profile accorded to such schemes has made them flavour of the month in some marketing circles. But they are now in danger of being seen as a blunt instrument that will deliver customer satisfaction in every circumstance.

Customer loyalty schemes have gained prominence because they are a key element in relationship marketing, which takes a variety of forms. Three of the most prominent are relationship marketing for customer retention, for locking in and for database marketing.

Relationship marketing for customer retention is based on the principle that it is more profitable to keep customers for the long term. It makes a great deal of sense to keep existing customers happy rather than devoting high levels of marketing effort to stemming customer turnover, where every customer who leaves has to be replaced by a new one in order merely for the company to stand still.

The concept of "locking in", obviously closely allied to customer retention, has developed from industrial or business to business marketing into consumer marketing. A long time characteristic of business to business marketing has been the creation of structural bonds between the buyer and the seller, such as the training of staff in one kind of machine or process only, which would make the cost of getting out of the relationship prohibitive.

More recently, programmes such as airline frequent flyer schemes and the frequent buyer clubs operated by retailers perform essentially the same function - that of developing loyalty by virtue of the customer returning to the same company in order to continue to accumulate points.

A third variation on relationship marketing - database marketing - has evolved from business to business marketing, too. Here detailed records of ongoing contact with customers are the norm. The use of databases has become accepted as a means of knowing more about customers and their purchasing patterns in particular.

Data on types of customers by a variety of income, location and demographic criteria can be cross referenced to the thousands of individual products, hundreds of lines and dozens of product groupings.

While there is a congruence in the minds of many between loyalty schemes and customer satisfaction, it cannot be emphasised too strongly that customer loyalty, customer retention and customer satisfaction are not synonymous.

And, of course, it is assumed that the correct strategic relationship is between customer satisfaction and customer retention - the way to keep a customer is to make him/her a satisfied customer. So customer loyalty schemes must be analysed for their ability not only to retain customers, but to retain them by making them satisfied.

Situations which are perceived by suppliers to be relationships but, almost certainly, are not perceived as so by the customer can be easily identified. A monopoly supplier, for instance, may well be operating a loyalty scheme and retaining customers, but the customers are staying because they have no viable alternative.

With schemes involving the accumulation of points, the customer may become quite disaffected but will continue to do business with the company because they have so many points accumulated that they feel they simply cannot switch. Simple inertia may inhibit a switch, because the inconvenience of doing so may outweigh the dissatisfaction that the customer is feeling. Repeat business alone therefore does not constitute brand loyalty because there may be many reasons why a customer would purchase the same brand repeatedly.

Customer retention does not provide conclusive evidence of a relationship, in the sense of customer satisfaction, because customers may have a variety of reasons for returning to the same service provider.

The fundamental point is that there is more to creating a satisfied customer and a long term relationship, than merely retaining them, locking them in, or gathering more information about them and maintaining this in a database. Loyalty schemes have come a long way since they were famously derided by Sainsbury as "electronic green shield stamps".

This information, in turn, may be useful in devising customer relationships based on satisfaction. But the wise marketer will be aware that the underlying cause and effect relationships between these factors is not as simple as they may at first appear.