Customer Loyalty Programs

1. Introduction

For decades, retailers have pursued strategies which are product and transaction oriented. Hence, they focused on the profitability of an individual transaction with a customer, rather than the profitability of a long lasting customer relationship. But in the late eighties they became aware of customer relationships’ value. Consequently the focal point of research shifted from short-run profitability and acquisition to customer lifetime value, customer care, and identification of appropriate methods to account for those effects.

A loyalty program is a marketing program designed to increase brand loyalty by developing an ongoing relationship between a marketer and his customer. It can be defined as a scheme offering delayed or immediate, accumulating benefits to consumers who buy certain brands or buy in certain shops. It is a process, a program, or a group of programs geared toward keeping a client happy so he or she will provide more business.

Most loyalty programs offer discounts, coupons, low interest rates on financing, extended warranties, rebates, and other rewards and incentive programs. Unfortunately, customers have plenty of customer loyalty programs to choose from, which can often dilute their value.

In marketing generally and in retailing more specifically, a loyalty card, rewards card, points card, or club card is a plastic or paper card, visually similar to a credit card or debit card, that identifies the card holder as a member in a loyalty program.

2. Objectives of Customer Loyalty Programs

At a very general level, loyalty is something that consumers may exhibit to brands, services, stores, activities, product categories. First of all, loyalty is an attitude that sometimes leads to a relationship with a store. (Foxall, 1994). Second, loyalty is received as an expression of patterns of past purchases (Fader, 1996). Third, loyalty is defined as buying moderated by an individual’s characteristics and the purchase situation (Belk, 1977).

Loyalty programs can be appreciated as vehicles to the following eight aims: increasing single-store loyalty, decreasing price sensitivity, enlarging switching costs, inducing greater consumer resistance to solicitations of competitors, dampening the desire to consider alternative brands, encouraging word-of-mouth support, attracting a larger pool of customers and increasing the amount of products bought (Uncles 2002). Customer loyalty programs help companies learn more about customers’ intra-corporate, inter-branch, or even cross-company purchase patterns. This knowledge allows for up- and cross-selling as well as for custom-tailored solicitations.

Keeping the loyalty of the customers involves many factors: personal relationships, product quality, customer service, price, and other brand values. Customers may express high satisfaction levels with a company in a survey, but satisfaction does not equal loyalty. Loyalty is demonstrated by the actions of the customer; customers can be very satisfied and still not be loyal.

Successful loyalty programs encourage the consumer to buy frequently, to increase the amount spent each time, and to concentrate all or most of their related purchases on that brand. The ultimate goal of customer loyalty programs is happy customers who will return to purchase again and persuade others to use that company's products or services.