Do Customer Loyalty Programs Work?

“The way to a customer’s heart is much more than a loyalty program. Making customer evangelists is about creating experiences worth talking about.”- Valerie Maltoni

In business, anything that customers like and benefit from would be deemed as ‘working’. Therefore, to know if customer loyalty programs work, a business should be able to answer in the affirmative when asked if these programs keep pace with customer expectations. Simple enough? Not really. For a large number of companies / brands, the answer is negative, since even if people may become customers, based on the loyalty programs, there is no telling how long they would stay and whether they actually like associating with the company or only ‘in’ for the program benefits.

A recently conducted research revealed that while customers may be enrolled, on an average, in about 13 customer loyalty programs, they were active in only about six of them. This means that even though the enrolment figures of customer loyalty programs may have increased, member activity is still very low. Customers may join several programs but do not feel engaged or connected to all, resulting in low spends by them, but costing the companies a substantial amount given the maintenance required for the programs. Once the ‘novelty’ dies, customers seem less interested in such programs, becoming a very real and serious concern for companies. The fact is that non-price differentiation initiatives take time to show results, and they are difficult to accomplish, especially given the fact that the market is teaming with competitors offering ridiculously low prices luring customers away.

Customer loyalty programs sometimes do not work for companies because the companies do not think them through – they do not engage customers enough and neither do they provide compelling reasons for the customers to use them actively. To ensure that customer loyalty programs work, they must be designed with a clear focus and a solid sense of purpose. A company must know exactly what they expect from the loyalty programs – meaning the programs must have robust and tangible objectives, which can be monitored and measured over time. This seems like a common sense and obvious approach, but most customer loyalty programs lack this discipline and end up become ineffective and counter-productive for the company. Companies seem to be putting together customer loyalty programs because everyone is doing so, without really understanding their individual goals that would help them move beyond the basic rewards and points. The approach instead needs to be more structured for customer loyalty programs to work – it must start with a thorough understanding of which customers are to be ‘targeted, a sound understanding of this target base that will ensure what benefits to put in, and the measures to analyse and track the effectiveness of the program.

Those companies that seem to have some idea of how to make customer loyalty programs work have been able to use these programs as an effective and meaningful differentiator. These programs ensure that they offer enough incentives and better value for customers to stay with the company, which makes them more credible in a shorter period. It is in the best interest of companies to identify and address the causes that would be preventing their programs from becoming or staying successful. This is a challenging task since customer loyalty programs are now being implemented by every company in a bid to capture maximum ground with customers, and only those companies would have some measure of success that constantly innovate to stay ahead of their competitors. Given some successes and a large number of failures, whether customer loyalty programs work or not has become a subject of debate since uncertainties and ambiguity continues to cloud them.

Customer loyalty programs work when companies offer great discounts, better prices, special offers and incentives to the most loyal and consistent patrons of their company. This makes customers feel special and valued, which in turn encourages them to not only spend more with the company, but also encourage their friends and associates to engage in business with the company. Over time, this becomes a happy cyclical process benefiting both the company and the customers – this is the point of customer loyalty programs in general – across industries. The truth is that customers are willing to spend a bit more in order to stay with a company that they perceive offers the best benefits and incentives. Over time, this leads to customer engagement, which is a solid pillar in the success of any company. Engaged customers are more willing to help a company succeed – since their own success is linked with the company in a number of ways.

Just like any other business imperative, customer loyalty programs too need time, effort, and attention. They cannot be imposed on customers and neither can they be expected to deliver results over night. Instead, the customer loyalty programs must be designed to connect with customers at a pace that would build a rapport – starting out with making an introduction of the company and by providing some kind of generic reward to any customer that enrols in the program. Post the ‘enrolment’, the company should make the time to contact the customer directly, offering rewards and benefits that would be personalized based on the customer’s needs, preferences, and requirements. The last step for the successful implementation of customer loyalty programs is for the company to gain feedback – ensure that the program supports a two-way communication that allows the customers to express their views and opinions.

From the company’s perspective, customer loyalty programs work since they provide the company with a sea of customer data, which when used judiciously can be hugely advantageous. Companies would be able to understand customers better, perform more in-depth research of the market, understand which products and services work best, and which pricing strategies hit the mark. This data would also enable companies to know what matters most to customers, which promotional activities find favour with them, and what would be the reasons that they would switch loyalties from one brand to the next. The more time and effort a company can put into understanding these aspects based on customer data, the better it would be able to draw customers in and keep them attracted to the brand. Brand loyalty is a huge advantage for any company, raising their power and standing in the market such that the company would be able to dictate prices from manufacturers and suppliers, thereby gaining better rates and margins. By passing on some more of these benefits to customers, a company would soon become the preferred partner, leaving most of its competitors behind.

The whole idea behind customer loyalty programs is to be able to show your company’s most loyal and profitable customers that they are important and valued. The more a company listens to them and finds out what the customers want, the better and faster would it be able to get customers what they want and when they want. A keen understanding of market trends, combined with an understanding of customer emotional and logical needs would help a company put together offerings and loyalty programs that would delight customers – and happy customers tend to buy more and stay longer. Customer loyalty programs work if they prove to be what customers expect and are done better than anyone else in the crowded marketplace.

 

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