Loyalty Programs – 1
As consumers, we are part of many loyalty programs. Loyalty brands are a win-win for brands and consumers – brands get greater spends and additional data on their customers, and consumers get rewards and other benefits for their loyalty. Previously I wrote about loyalty programs (based on a LinkedIn series by Ajay Row) as part of a series on Velvet Rope Marketing.
Here is a good overview from Wikipedia:
A loyalty program is a marketing strategy designed to encourage customers to continue to shop at or use the services of a business associated with the program. Today, such programs cover most types of commerce, each having varying features and rewards schemes, including in banking, entertainment, hospitality, retailing and travel.
A loyalty program typically involves the operator of a particular program setting up an account for a customer of a business associated with the scheme, and then issuing to the customer a loyalty card (variously called rewards card, points card, advantage card, club card, or some other name)…By presenting a card, customers typically receive either a discount on the current purchase, or an allotment of points that they can use for future purchases…Loyalty programs have been described as a form of centralized virtual currency, one with unidirectional cash flow, since reward points can be exchanged into a good or service but not into cash.
Investopedia has more: “Loyalty programs are offered by retailers and other corporations as a way to attract and retain customers. [They] offer rewards, discounts or other special incentives and are designed as a reward for brand loyalty. The programs benefit companies not only by developing customer loyalty but by providing crucial information on how customers are spending and what products or types of offers are most appealing… Loyalty programs provide two key functions: They reward customers for brand loyalty, and they provide the issuing company with a wealth of consumer information… Once a customer becomes comfortable with the app, they begin to trust the company will deliver a consistent experience at each time. At this point, customers will stick to a hotel, restaurant, airline, etc., because of points more than anything else.”
Zaius outlines the benefits of a loyalty program: “For growing brands, the biggest appeal of loyalty programs is that they can help generate revenue faster than a marketing strategy that focuses on recruiting brand new customers. Repeat and loyal customers make up 8% of a typical ecommerce site’s traffic but drive 41% of its revenue, and loyal customers spend 5x more than first-time buyers. So, while it might sound scary to turn marketing attention away from new customers and toward existing ones, tapping into your returning customers and converting them into loyalty members is worth the investment…72% of adults in the U.S. belong to at least one loyalty program, and a typical U.S. household actively uses five to 12 of them.”
Clarus Commerce discusses various types of loyalty programs: points, cash back, punch card, tiered, coalition, premium (fee-based) and hybrid.
The most popular ones are typically those of airlines. In fact, airline miles have become a sort of tradeable currency – where we can earn miles for various activities outside of flying (hotel stays, car rentals, spending via co-branded credit cards) and spend miles on various purchases besides airline tickets. In India, the largest free loyalty program is Payback (owned by American Express) which has 100 million members.