Loyalty - the next gen marketing tool

Loyalty programs have become the buzzword in today's marketing lingo.
Vijay Bobba

Loyalty programs have become the buzzword in the marketing lingo of today. Organisations have been designing loyalty programs (LP) to reward and retain their regular customers. Let us find out what they are and how they work. Almost every brand in the organised retail sector has its own program. So does airlines and banks that offer credit cards. Jet Airways (Jet Privilege card), Kingfisher (King Club program), Shoppers Stop (First Citizen) are some of the examples of such programs in the Indian market. Almost all credit cards offer reward points. Also, there is i-mint, India’s first multi partner customer reward program.


Loyalty Card

A retail establishment or a retail group issue loyalty card to the consumer who use them  as identification form while dealing with that retailer. To enable easy identification, customers seeking the issuance of a loyalty card need to provide certain basic personal details such as name, address and demographic data to the card issuer. By presenting the card, the purchaser is typically entitled to either a discount on the current purchase, or an allotment of points that can be used for future purchases.


The beginning

The trend started with the airline industry (American Airlines) announcing the frequent flier programs in the 1970s. Originally devised to generate better data on the most popular routes, the airlines broke what was a one-price-fits-all standard and introduced some-people-are-more-special-than-others psyche which has changed the American and global marketplace forever. Their concept based on ‘the more you spend, the more you earn’ philosophy that has laid the foundation for the relationship or loyalty marketing industry we see today across various sectors.  


Why Loyalty Program?

Loyalty program serves as a means to capture meaningful insights necessary to  understand customer behavior. This in turn, helps to place marketing initiatives that can increase retention.

Primarily loyalty programs:

  • Track customer’s purchase behavior and map the same with other factors such as demographics, behavior and attitudes.
  • Better understanding and identification of customer segment that drives the bulk of the business
  • Creating marketing efficiencies by providing customised marketing initiatives for different segments of consumers.


Types of loyalty programs

There are six types of loyalty programs that can be found. These are:

Appreciation: Giving customers more of a company’s product/service

Rewards: Rewarding customers unrelated to a company’s product/service

Partnerships: Marketing to another company’s database and allowing loyal customers to choose their rewards from either company.

Rebate: Giving discount on the purchased product to the customers.

Affinity: Building a lifetime value relationship with a customer based on mutual interests and not on the use of rewards

Coalition: Teaming up with different companies to share customer data to jointly target a specific customer demographic.


An expensive bargain…with great returns

One cannot affirm the success of every royalty programs. This is primarily because loyalty programs are an expensive proposition. In the supermarket industry, they cost from 1 per cent to 1.5 per cent of the revenue, and in other industries they cost between 2 per cent to 5 per cent. Ideally, no program gives instant results. It takes approximately 18 months to start a business and see returns on a loyalty program.


Once the gestation period is over, it has been observed by experts that by cutting customer defection even by half the average growth rate doubles. On the other hand, if there is a 5 per cent increase in the rate of customer retention, profits could increase by 25 per cent! In case of credit cards, a 5 per cent increase in retention will increase lifetime profits of a typical credit cards customer by 75 per cent.


Multi-partner Loyalty Programs – Make loyalty profitable 

A coalition or a multi partner loyalty program brings together several brands and businesses on a common loyalty platform. Currently in India, i-mint is only such program. However, across the world, there are several programs like Nectar, Airmiles, My points etc. Thus, multi-partner loyalty programs provide a stage to thousands of merchants to interact with millions of customers.

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