Among the frenetic activity of large stores opening and the expressed visions of organized retail taking over the market in the past couple of years, the competition is becoming more intense with each passing month. What would set the winner apart is not just the customer experience and satisfaction but also customer loyalty – where, for instance, an “unorganized” kirana store can still beat a much-larger organized retail business due to the intimate understanding of their customer base and micromanagement of the store.

What it would take for the organized retailers to replicate that experience is the people who create a culture of caring. This may sound “soppy”, but only true concern for the customer produces fabulous service from a salesperson. And if the salesperson has true concern, then he / she is probably showing the same concern to others (including colleagues and others in his / her life), and this itself can’t exist in isolation.

Many organised retailers have already made huge investments to put the technology and systems in place in the store. The missing link, however, is bridging them and customer with care and understanding, which is an absolute essential for the front end of any retail business. When time and competition is getting tougher by the day, creating a culture of caring makes great business sense for an organized retailer.

A few years ago when I was called upon to make a presentation about customer loyalty, I ran into this brick wall of, “Do loyalty programs work or don’t they?”

The way around the wall was to not look for a black or white answer. Some programs work and some don’t. The difference, I found, was in the degree of impact on core operations (e.g. product selection, displays, pricing etc.) – i.e. how these were fine-tuned from the feedback and other information collection from the loyalty program.

What was certainly clear is that we can clearly differentiate between loyalty that is “bought” (discounts, freebies, loyalty points etc.) vs. loyalty that is “earned” (i.e. you attend carefully to what the customer is saying she wants, and you make sure that you go all out to provide that).

The hotel and airline industry, where well-structured loyalty programs have their roots, depended heavily on buying loyalty. Interestingly, these are now proving to be long-term liabilities, which initially led airlines to put an expiration date and is now leading them to de-value the mileage points (just like a country would devalue its currency!) – thus customers would need more points to make the same trip.

On the other hand, those retailers, hotels or airlines that have learned from their loyal / club / elite customers, have made sure that their offer is constantly value-added, and in some cases constantly differentiated.

In most markets, the top criteria for a consumer to select a store are operational (location of the store, availability of product, range of merchandise, pricing, etc. etc.), and often there is a huge gap between what the consumer expects and what the retailer serves up. In that context, a loyalty program is like applying band-aid to a fracture!

Does this all mean that all “bought loyalty” is useless and that loyalty programs don’t work? Not at all! Retailers can certainly use loyalty schemes to identify high value customers and cultivate them through ongoing exchange of information, and also reward customers for their purchase behaviour. But building and retaining relationships with customers and increasing the share of customer spending in-store is something that can only be delivered by better operations.

We need to reconsider the motivation to have a loyalty program. “Loyalty” schemes’ primary benefit is not loyalty, but a basis of building relationships with individual customers in gathering “Purchase Trend and Product Information” and in achieving better focus and targeting. These need to be used to improve operational effectiveness which produce loyalty – product focus and a service customization opportunity.