Step-by-step explanation:
a) One potential downside or risk for a retailer of having a traditional loyalty reward program is the cost associated with implementing and maintaining the program. Depending on the program structure, retailers may need to invest in customer relationship management (CRM) software, technology infrastructure, and resources to manage the program effectively. There are costs to develop and maintain the rewards program, manage customer data, track purchases, issue rewards, and handle customer inquiries or complaints. These expenses can potentially outweigh the benefits if not managed properly, especially for start-up retailers with limited resources.
b) One reason why retailers can benefit from operating a traditional loyalty program is the potential to increase customer retention and loyalty. By offering incentives and rewards to repeat customers, retailers can foster a sense of attachment and encourage customers to continue shopping with them. Loyalty programs provide a way to acknowledge and appreciate customers' repeat business, making them feel valued and recognized. This sense of loyalty can lead to increased customer lifetime value, higher average order values, and repeat purchases, resulting in improved revenue and profitability for the retailer.
Additionally, loyalty programs can also contribute to valuable customer insights. Through customer data collected as part of the loyalty program, retailers can gather information on customer preferences, purchase patterns, and demographics. This data can be used to personalize marketing efforts, create targeted promotions, and enhance the overall customer experience. By leveraging customer data effectively, retailers can tailor their offerings to meet customer needs and strengthen their competitive position.
In summary, while the cost of implementing and maintaining a traditional loyalty reward program can present risks, the potential benefits of increased customer loyalty, repeat business, and access to valuable customer insights make it a worthwhile consideration for start-up retailers in the luxury apparel industry. It is essential to carefully assess the costs and benefits and tailor the loyalty program to align with the retailer's business goals and target customer base.