Loyalty Programs
Loyalty programs are marketing efforts that reward a person or organization for frequent purchases and the consumption of offerings. Examples include frequent flyer miles, discount programs, and grocery store shopping cards. When consumers sign up for these programs, the company gathers a lot of demographic information about them. The information is used improve the company's offerings and track consumers' behavior. Some companies will combine efforts to offer a cross-promotion; which offers consumers something extra and introduces another company to the customer community. A loyalty program isn't necessary to create loyalty.
The Positive Effects of Loyalty Programs
When loyalty programs work they result in four effects of loyalty:
- The longevity effect is the lengthening of the lifetime value of a customer. This means that the buyer remains a customer longer. Because a company has better information about its customers, it can create offerings that are more valuable to them and keep them coming back. A loyalty program also increases switching costs; thereby contributing to the longevity effect.
- The blocker effect occurs when the customer blocks out competitors' marketing efforts because they have no need to shop around. The personal value equation of the customer is enhanced by the loyalty program and he/she is less deal-prone, or willing to succumb to a special offer or lower price from a competitor.
- The spreader effect refers to the fact that members of a loyalty program are more likely to try related products offered by the marketer, especially if there are cross-promotions.
- The accelerator effect occurs when customers are nearing a higher level of rewards in a loyalty program. As they get close to the next level, they speed up their purchasing behavior to try to more quickly reach the next level in the loyalty program.
The Good The Bad The Ugly Loyalty
Criteria for Successful Loyalty Programs
Just having a loyalty program doesn't mean it is successful. Of eight studies of more than a dozen grocery-store loyalty programs in the U.S. and Europe, five programs had no impact on the loyalty of customers, two increased sales but not profits, two had mixed results, and five had positive results.
Characteristics of successful loyalty programs include:
- Overall performance of the company is good. No loyalty program can overcome a company's poor performance.
- Company is responsive to customer complaints and uses information gained from loyalty programs to better serve customers.
- There is a shared identity among participants. Customers are recognized as being members of the loyalty program.
- There are clear benefits to being a member of the loyalty program.
- There is a sense of community among the members of the loyalty program.