The Four Basic Benefits of a Loyalty Program

History1Did you know that Loyalty programs have been used in commerce for decades? They originated in Germany where price based competition was disallowed by governmental restrictions in certain industries. In the 1930s, S&H Green Stamps rewarded grocery store and gas station customers in the US with stamps redeemable for appliances and other merchandise.

History2The modern day loyalty program was launched in 1981 by American Airlines, and was quickly duplicated by other airlines and other hospitality industries including hotels, car rental companies, and credit card organizations.

Throughout the years, both businesses and consumers have recognized the value of loyalty programs. Research shows that only 12% – 15% of customers are loyal to a single retailer, but it is that small bracket of shoppers that generate between 55% – 70% of company sales.

Some food retailers find that as much as 65% – 95% of their sales go to members of loyalty programs. Numbers show that 53% of food retailers offer loyalty programs with 3/4 of program customers using their loyalty cards at least weekly and 88% at least once a month.

History3Loyalty programs have many purposes but in general businesses think about them as a channel to reward customers for purchases and so to keep customers spending more and more with the business.

However, the greatest value that a well implemented loyalty program offers to a business is the ability to identify individual customers and to measure and understand their individual behaviors. This consumer behavior data, especially in the 21st century where competition is high and consumers are more in control, far outweighs the monetary value of providing consumers the opportunity to build a reward opportunity by shopping at one particular brand. This specific value is often misunderstood by businesses, small and big.History4

Having said that, loyalty programs in today’s business world, are considered the gateway to consumer data that would offer the business a window into a structured, measured, and targeted marketing efforts to drive business growth.

So before we start discussing the different components of what is today considered a loyalty program, let’s clarify the very basic benefits of using a loyalty program to obtain customer information, which are:

  • SHIFT – Acquire new customer
  • LIFT – Increase the spending of existing customers
  • RETENTION – Improve the natural churn rate of customers
  • PROFIT MIX – Shift spending to higher margin products

These four basic loyalty program benefits form the basis for all loyalty program initiatives.

History5You might have guessed by now from reading through this article that customer loyalty is the realm of the marketing department. So in case you were thinking about assigning this to your IT manager or operations manager, you need to stop and think about your marketing managers. They should be the ones responsible for designing and managing customer loyalty because they are in charge of establishing a connection between your brand and your customers.

Unfortunately many businesses confuse “loyalty” with “rewards”, and this is a fundamental mistake of many marketers. Loyalty stands for advocacy and commitment not points so it is really more about behavior and relationships through personalized and relevant engagement. Keep in mind the four basic benefits that you should aim to achieve from your loyalty program when you start thinking about implementing one or when you decide you need to improve the one you have.

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In order to shift, lift, and retain your customers, you need to understand them, communicate with them in a personal manner and on relevant matters. This is what your customer loyalty program should allow you to do; otherwise, it is just another discount system.

 

 

 

 

 

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