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Busting Six Myths About Customer Loyalty Programs

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Busting Six Myths About Customer Loyalty Programs
Marcel Corstjens and Rajiv Lal

Harvard Business School
Working Knowledge
24 Feb 2014

Low-margin retailers argue they can’t afford customer loyalty programs, but is that true? Rajiv Lal and Marcel Corstjens make the case that such programs are profit-enhancing differentiators.

There are three ways to differentiate in retailing: location, location, and location. The problem is that as markets mature, location becomes less potent as a competitive advantage because the consumer has a growing abundance of convenient choices.

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.

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