(Customer) Loyalty Program

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What is a Customer Loyalty Program? Meaning.

A Customer Loyalty Program is a marketing method to encourage customers to buy or continue to buy certain products or services.

This could be products or services of one company or of a group of companies who are working together.

The loyalty program can be run by an organization that is selling the products or services or by an independent loyalty program organization.


Objectives of Customer Loyalty Programs

In simple terms, the aims of most programs are to keep the customers, to make them buy more through repeat purchases and on top of that, to use the customers data that is collected when customers make purchases using their loyalty card.

In other words, the following are the key objectives of loyalty programs which a company should keep in mind while implementing such program:

  1. Retain the Customers and Prevent Customer Defection:
    Customer defection, also known as customer churn, customer turnover, or customer attrition, is the loss of clients or customers.
    A loyalty program should provide such benefits that before turning to a competitor, the customers should think twice about what will they be losing if they don't buy from you. It should create some barriers to exit so that a customer feels that more benefit is being provided compared to the competitor.
    For example, Amazon Prime offers free and early delivery, so if customers like a product, they would always prefer Amazon to buy that product as they signed up for a year and would want to utilize the benefit even if they have also seen the product somewhere else first. Amazon Prime gives benefits for 1 year. By doing so, in short, they lock the customers in for 1 year by giving them benefits for that time period.
  2. Increase the Overall Spend (purchase volume):
    This means increasing the share of wallet of a customer. Customers buy many products and services from different companies. An effective loyalty program always encourages the consolidation of purchases, encouraging them to buy more things from the same company/retailer.
    For example, the Amazon Visa card program gives customers for every dollar they spend a reward of 1 point worth 1 penny. And if they use the card on Amazon.com they get 3 points for every dollar spent. And when customers accumulate 2500 points they gets an Amazon gift card worth $25. So this program gives customers a reason to favor Amazon rather than going to different stores for different items.
  3. Build Insight into Customer Behavior and Preferences:
    A loyalty program to be successful needs time as the data obtained from the initial period of the loyalty program can be used to deliver more personalized benefits for the customers. Thus the measurement of success of a loyalty program takes time as it improves gradually. The insights from the purchasing pattern of the data can be very useful as it helps to create targeted promotions to individual customers. A retailer can also use this data to improve the merchandising mix and give certain benefits to the customer via the loyalty program. This will be difficult for competitors to compete against, as these benefits come from the customer's own preferences. is a form of Relational Capital, which can be analyzed using database management, datamining, Business Intelligence, or Analytical CRM software. The analysis can be exploited to reveal >purchasing patterns or Cross-selling opportunities. Smart cards can be used to improve data capture.

A typical example is the shopper card or customer loyalty card, which gives a discount or points or other benefits to card holders when they are making purchases while showing their card. It is possible that also other parties might be involved. For example charity organizations or sports clubs might receive certain benefits too when their members make purchases using the loyalty card that is associated with them.


Customer Loyalty Programs are a form of Permission Marketing.

Also called: loyalty program, incentive program, loyalty scheme, loyalty card, shopper card.


Loyalty Programs Special Interest Group


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ROI of Loyalty Programs
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A loyalty program is considered good for the company when it can extract maximum value from it. Here it means building a (...)
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Best Practices about Loyalty Programs

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The Actual Relationship Between Cross-buying and Consumer Loyalty

Customer Loyalty, Consumer Loyalty, Cross-Selling, Cross-Buying, Sales Management, Account Management (...)
   
 
 
 
Information Sources about Loyalty Programs

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Compare with: Customer Loyalty  |  Customer Relationship Management  |  Customer Satisfaction Model  |  SERVQUAL  |  Relationship Marketing  |  Relational Capital  |  Analytical CRM

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