The many advantages of loyalty
That s one reason why mass retailing in mature markets is a sector notorious for its lack of differentiation between players. Once location has played out its magic retailers tend to get squeezed in a business characterized by the infernal duo of low margin and high fixed cost. In such businesses price wars are never far away. Creating non price differentiation is difficult in retail as well because development of such advantages takes time and is difficult to execute. All the while low price players are constantly looming to pounce.Can low margin retailers afford customer loyalty programs Photo iStockPhoto Chinese Overseas America Number Data It is therefore not surprising that many retailers have adopted loyalty programs as a convenient mechanism of meaningful differentiation. Ultimately loyalty programs should offer incentives for shoppers to reduce their store switching by offering them better value. Loyalty programs have the added advantage of not taking much time to establish making the threat of price wars from competing retailers less credible. Uncertainties Ambiguities And Doubtprograms have been well debated in the massive literature available on the subject. Yet there remain uncertainties ambiguities and doubts in the minds of many retailers over whether loyalty programs offer a sustainable and profitable business model.
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Retailers such as Sainsbury s in the United Kingdom illustrate this hesitation. They were early adopters of loyalty programs but dropped them claiming they were too costly without compensating tangible benefits. Recently they reinstalled a program in a market where all non Every Day Low Pricing players offered them. A lot of this uncertainty is due to a number of myths. In this paper we want to clarify the most prominent of misunderstandings associated with loyalty programs in retailing.
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