CRM vs. Loyalty Programs: Best Friends or Arch Rivals?

Ask business owners what keeps them up at night and most will say driving revenue, increasing profitability, staying ahead of the competition, and retaining customers. For the past year and a half, companies in a variety of industries-most notably those involved in the financial services, telecommunications, travel and tourism industries - have looked to large customer relationship management (CRM) applications as a way to calm these bedtime demons. The nightmare is that CRM solutions can be expensive and difficult to attain, and what many are learning is that well run and targeted customer loyalty programs can provide nearly all the benefits of CRM with fewer hassles and far less expense...almost a dream come true.

The key for success with either CRM or customer loyalty programs is truly understanding customers and their behavior - something even customers have now come to expect. In an August 5, 2002 GartnerGroup research report entitled "From Nice to Have to Necessity," industry analyst Scott Nelson sums it up this way, "CRM is here to stay because customers, both consumers and business entities, now expect customer centricity as a basic fact of life. Customers expect to be able to deal with enterprises when they want, where they want and how they want. Enterprises are expected to remember past interactions and to build on those interactions in the future. Customers know that they hold the ultimate 'trump card' - their loyalty. Enterprises that don't rework themselves to support customer-centric business processes risk the mass defection of their customers, and with them, their associated revenues. Therefore, CRM is no longer a competitive differentiator; rather, it is a business necessity in the 21st century."

What many organizations are now discovering is that customer loyalty programs generate nearly 80% of over-all CRM benefits--at only a fraction of the time and costs typically associated with a full-blown CRM initiative. More importantly, for some industries, CRM applications just aren't a viable alternative to loyalty programs.

The retail and restaurant industries, for instance, have large number of customers who are difficult to identify. This means that these organizations likely have no idea who their customers are, let alone which are the most valuable. The same is true for almost any business where a customer can frequent the store, make a purchase, and leave without providing relevant demographic information. For these types of industries, overcoming the customer identification hurdle is a necessary step that needs to take place well in advance of any successful CRM initiative. To help get them started, some merchants have instituted private label credit card programs, which provide a convenient tool for making purchases, and have the added benefit of identifying customers. Many merchants have come to realize that while these programs are valuable, they only attract a certain segment of their customer base. They and the many merchants that only accept major credit cards, debit cards, and cash as a method of payment are seeking to adopt loyalty programs to help identify their valuable customers.

Retailers say that one of their greatest customer challenges is trying to get customers to identify themselves as soon as they walk in the door. Today's more sophisticated loyalty programs make that process easier. What restaurateurs and retailers have discovered is that they are now realizing many of the same benefits as businesses that rely on more costly CRM technologies. For example, by using CRM systems a restaurant chain would be able to remember a patron's favorite wine or a favorite table while a hotel chain would be able to recall whether the guest had a preference for a feather or foam pillow. While these one-to-one personal touches will undoubtedly improve the relationship these organizations have with their customers, before any of these personalized perks can begin, these establishments must first be able to identify who their customers are.

Today's loyalty programs have become so sophisticated that they deliver customers many of the underlying benefits of a full-blown CRM solutions - such as the ability to identify best customers, recognize them right at the point of sale and even treat them uniquely based on who they are.

If we look at this in terms of percentage of customer centric value and intelligence that both CRM and loyalty programs provide we sum it up this way: identifying the customer (50%), knowing how much they spend and when (30%) and knowing exactly what these customers want from you (20%). A top notch CRM system will deliver 100% of the above-mentioned benefits but only after a great deal of planning and quite probably a steep financial investment. By implementing a loyalty program alternative, businesses benefit from the first two goals (or 80% of the benefits of a full-blown CRM solution) at only a fraction of the cost and time. It all boils down to the 80/20 rule- if a business does not really know who its customers are, it is better off implementing a real time loyalty program to get 80% of the way toward the CRM dream at 20% of the cost. Once the company understands who its top customers are and begins to roll out programs and offers designed to treat them better, then it is ready to consider whether that last 20% is worth the effort and expense.

While both CRM and real-time loyalty programs have merit, loyalty programs stand out as a highly viable "first step" for many organizations. After all, the costs are lower, implementation is easier, and return on investment is swifter. And what's becoming clearer is that for many organizations, a good strong loyalty program is the first and only step they need.