The loyalty program is an age-old marketing strategy that, unlike many other marketing fields, has more-or-less retained the exact same goals since its initial launch in the year 1700 (approximately)!
Loyalty programs are based on the well-known formula – customers who buy more, get more. The subject of differential compensation rests at the heart of every successful loyalty program; the ability to give more to customers who buy more is the loyalty program’s trusty anchor.
So, what are the actual goals of the loyalty program?
A good loyalty program essentially benefits both sides – the customer and the brand.
Customers appreciate one thing in a loyalty program – getting compensation that others, who are not program members, do not receive.
Compensation can take the shape of many sorts of rewards:
- Monetary – The common format is usually also the easiest (easy to estimate the value of what is received) – brands’ program members receive financial compensation – discounts, accumulated points, special conditions and more.
- Service – A less common format in most countries, and one that is extremely hard to implement. Compensation that enables members to enjoy special attention and service, such as: A special line for program members (in-store), faster delivery times, priority supply and more.
- Experience – A unique experience for program members: personalization, special launches, exclusive customer soirees, unique opening hours, and more.
The compensation is internalized by customers in terms of perceived value. Namely, how the customer perceives the offers presented by the brand. A 10% discount or ability accrue points to be used within a brand or sector, are not perceived as significant compensation – and customers will expect more in exchange for joining a loyalty program (membership club).
The brands that run loyalty programs expect to receive returns, in return for the offers they present:
- The ability to get to know the customer (data) – Manage and save, on an identified customer level, information on every purchase made.
- Direct contact with customers (own media) – build your own, cost effective, media channels – email & mobile.
- Improved sales metrics – Mainly increased recency, frequency and monetary values.
The ability to get to know their customers and contact them directly (including via paid media, such as Google and Facebook), is what must remain at the foundation of every brand’s decision to manage or launch a loyalty program.
Another benefit for brands is the ability to create differential rewarding. Among some brands, 10% of their customers generate 40-50% (and even more) of their income. As such, it is important that the mechanism of rewarding knows how to supply them with more offers. An earning points mechanism serves this need well, even though its perceived value wanes over time.
With respect to airlines, for example, the different tiers are designed to respond to this differentiation need (between customers) and enable customers who markedly spend more to be rewarded, in order to cause all customers to improve the level of earning they receive.