An increasingly competitive and price driven marketplace requires strategic marketing to evolve, developing and retaining continually meaningful relationships with customers. This is essential bearing in mind the cost of acquiring a new customer, which is six to seven times more expensive than retaining an old one; therefore, ensuring customer loyalty is a commercial priority.
A Loyalty program is the art and science of making a customer loyal to your organization by providing him with services that would make doing business with you a rewarding experience.
The objectives of a loyalty program can be summed up in the following points:
Rewarding loyal customers with more of your own product/service. This is often the route taken by service-oriented companies like airlines, hotels and clubs. Each time you fly a particular airline, you get some reward miles. These miles can then be redeemed for additional services. This pattern is also common in the retail sector and has different levels of membership based on the customer's buying pattern. You may start your membership as a 'Silver' member and move up to 'Gold' once you have spent a certain amount. This elevation in status may bring with it higher reward points on each purchase, higher discounts, or dedicated checkout counters. The goal here is to increase guest lifetime value, It can also be used as a device to get good guests to sample more of your other products and services.
Rewarding loyal customers with awards unrelated to your product/service. Credit card firms who award points to the customer every time the card is used usually follow this trend. These points in turn can be redeemed for some products or 'gifts'. E.g.: if you accumulate 1000 points on your card, you can redeem it for a premium branded leather wallet. In the retail industry, there are programs that offer the customers rebates to products and services that are not directly related to the retailer. E.g.: the members of a retailer's program are offered a discount at local restaurant. Use this type of program when you want your program to also serve as a new guest acquisition program and to differentiate your brand from the competition.
Marketing to another company's database and allowing customers to choose their rewards from either company. Several companies joining hands to offer a bouquet of services/products to the customer. Most of the airline companies have a tie-up with hotels and car rental companies. In retail, a sub-variant of this is seen as several companies joining hands to offer a variety of products under one roof. It's not common to see a coffee shop, a bakery, a fast food joint, a pharmacy or a photo shop within the premises of a retailer. This makes it convenient for the shopper to get all his needs at one place. Primary goal is to acquire new guests and increase the basket spent.
Rewarding loyal customers incrementally according to their purchase activity, offering discounts or cash-back to the customer for doing more business. This is most popular in retail where customers holding the card get a discounted rate. When you have a wide selection of products, this program can motivate incremental purchases and can increased store traffic.
Building a lifetime value relationship with a customer based on mutual interests and not on the use of rewards. Once a customer climbs the loyalty ladder &reaches advocate status, your brand is firmly planted in their minds. Program offers special value added benefits , bonuses and recognition as a valued guest. E.g.: airline flyers earn Silver or Gold status once they have earned a certain number of points.
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