Ebay Plus- Loyalty Program

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CRM ist the strongest and most efficient approach in attracting, creating and retainig relationships with customers. Particularly in challenging times or highly competitive markets, efficient and effective customer bonding can improve organizational profitability (Bull, 2003, p.601).

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Loyalty

Loyalty can be defined as a “state of mind” (Dick & Basu, 1994, p.99). Loyalty and trust are usually associated with human-to-human relationships, but in this sense, they are also applicable to companies or brands. Much more, nowadays, loyalty and trust can be stated as the marketplace currency of the twenty-first century. Loyalty can be become a significant tool referring customer relationships (Dooley, 2012, p.97). Implemented and apllied correctly, loalty can ensure “an important basis for developing sustainable competitive advantage” (Dick & Basu, 1994, p.99).

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Loyalty and strategic CRM

Researches have shown that customer retention affects the company’s profit: maintaining an already existing customer relationship is more efficient and also more cost effective than acquiring new customers. Existing customers are already familiar with products and services, require far less persuasion to buy the company’s products or services (Bull, 2003) and at best, loyal customers may act as brand advocates and thereby further enhance the marketing of the company (Dooley, 2012, p. 97). Therefore CRM invented programs that reward loyalty of existing but also new acquired customers, with certain, specific rewards. The ulterior motive hereby is to privilege more loyal and frequent buyers.

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Concept of Loyalty Concepts

In the following section, the general concept of loyalty programs and their key design characteristics are explained.

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General Concept of Loyalty Programs

Companies implement loyalty programs to further develop and enhance the relationship to their customers. According to Kumar and Reinartz, a loyalty program “comprises a marketing process that generates rewards for customers based on their repeat purchases.” (2012, p.184) These programs have been introduced to various organizations in the past years, intending to build a more intensive customer commitment to the product or service of the company. As already mentioned in the introduction, LPs are acting in this context as a crucial instrument in order to identify, award and retain profitable clients.

Besides attracting and binding customer, companies’ intention of introducing LPs, are: building true loyalty (behavioral as well as attitudinal), increasing efficiency and effectiveness profit as well as value alignment (Kumar & Reinartz, 2012, p.185).

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True Loyalty

True loyalty is expressed in an intense commitment to the product or service; it is achieved by excellent product/service and represented in the degree of involvement in the product category. It is an aspect that cannot be steered or controlled by the organization.

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Efficiency Profits

Efficiency profit is the positive change in the customer’s buying behavior: quantity or frequency of the purchase. Efficiency profit can be measured as the net cost of LPs. (Kumar & Reinartz, 2012, p.185).

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Effectiveness Profits:

Effectiveness profits are medium-to long-term profit that result from the intense knowledge of the customers purchasing behavior and preferences. Effectiveness profits are likely to generate sustainable competitive advantage and normally achieve the highest long-term (Kumar & Reinartz, 2012, p.186)

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Value Alignment

Value alignemnt intends to match the cost to serve a customer with the value that the persons brings to the firm. It helps the company to adapt the level of service to the level of custmers loyalty. (Kumar & Reinartz, 2012, p.186-187)

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Design Characteristics

Loyalty programs are a very popular, widespread tool for customer relationship management. Consequently the programs vary within and across the different industries. Some main design characteristics are described in the following part.

For understanding the difference loyalty programs, it is important to understand the difference between behavioral and attitudinal loyalty: Behavioral loyalty refers the observed actions that customers have shown towards a certain product or service. Attitudinal loyalty instead refers to a customer’s perceptions and to the attitudes toward a particular product or service. In the best case there should be a correlation between customer’s attitudes and behaviors, but it some cases, for example, dissatisfaction, it can also differ. (Kumar & Reinartz, 2012, p.184)

The design of loyalty programs can be adapted to different needs. Hereby, key dimensions as the reward structure, participation requirements, payment function, sponsorships and the cost and revenues of LPs, play an important role.

- Reward Structure

In general, customers are motivated to enroll in LPs because the programs promise certain rewards, as far as a certain loyalty in terms of purchase frequency for example, is provided. Rewards that customer can receive, can be delivered as hard or as soft bonuses. Hard rewards are tangible or financial goods, as free gifts or price reductions. Soft rewards are psychological or emotional benefits; a free airline ticket would be an appropriate example. These kinds of rewards cause often a special recognition of the customer, because they enjoy the special treatment/status. (Kumar & Reinartz, 2012, p.192). Furthermore the reward itself does not always need to be linked to the company. They are opportunities to receive rewards which are completely unrelated to the focal firms’offering. Another point that organisations have to consider when developing the loyaltiy program, ist the aspirational value of reward. Researches have shown that customer tend to prefer hedonic rewards rather than utilitarian ones. Therefore companies attempt