Customer Loyalty

Why Have a Loyalty Program

Written by Clayton Reeves for Gaebler Ventures

There are several things that a loyalty program can do for your firm. Knowing these things when you initiate a loyalty program is imperative to the success of any customer loyalty program.

Loyalty is an important part of any marketing mix.

However, it is important not to overestimate how loyalty can affect your sales and profits. Loyalty programs used to be one of the most popular ways to turn a profit using marketing. In recent years, there has been discussion over the actual benefits of loyalty programs. There are four things that a loyalty program can definitely do, without actually tying profits to loyalty.

Keep customers from leaving

Marketers far and wide agree that customer retention is one of the greatest metrics that marketing can be measured by. Acquiring customers is very expensive, so keeping them on is a positive sign. If a customer is vested in a loyalty program, it may represent a barrier to exit for them. Initial investment in the loyalty program is part of what makes the program successful. Without initial investment, there is no incentive to stay. Thus, getting customers to buy into the loyalty program quickly is important.

Get more of a customer's spending

Winning a bigger portion of consumer spending is a big part of loyalty programs. If there is a sandwich punch card, then there may be more incentive for a customer to shop at that restaurant than their competitor. This can increase customer retention and revenues potentially. Also, if there is a loyalty program a customer may choose to consolidate their spending and use your firm exclusively for their purchases in one facet of their business operations. If a company uses Visa and Mastercard for their purchases, if one of those card companies offers a superior loyalty program, that firm may switch all of their purchases to that card. This is what purchase consolidation is all about. It may not mean making the customer buy or spend more in aggregate, but rather spend more at your firm.

Create incentive for additional purchases

Add-ons are generally one of the more profitable facets of a business. In cell phone sales, the holders, chargers, skins, earpieces and extra batteries are far more profitable than the phones or service plans. This means that your company can employ similar strategies by tacking on useful high margin product to your sales mix. If your loyalty program has more than one tier, then customers may push themselves to reach the next level of reward when they might not have regularly.

Gather customer behavior information

This is one of the most valuable soft benefits that a customer loyalty program can give a firm. Although there are no real tangible revenue benefits to this part of the program, the information can prove invaluable. Customer behavior information means you can track loyal customers' tendencies and habits and derive wants and needs from those two things. This can aid in how well the marketing plan works.

When he's not playing racquetball or studying for a class, Clayton Reeves enjoys writing articles about entrepreneurship. He is currently an MBA student at the University of Missouri with a concentration in Economics and Finance.

Share this article

Additional Resources for Entrepreneurs

Lists of Venture Capital and Private Equity Firms

Franchise Opportunities

Contributors

Business Glossary