LOYALTY PROGRAMS: LOVE FROM THE FIRST PURCHASE

Loyalty marketing is also known as relationship marketing. It is a system of structured rewards that a company gives to a customer for purchases or use of services. Loyalty programs encourage people to purchase additional goods and services. They also form customers’ attachment to certain companies.

The first loyalty programs appeared at the beginning of the 20th century. For example, the gas station chain S&H Green Stamps (USA) introduced such a program in the 30s of the 20th century. Every customer who made a purchase at a store or gas station of the chain received special stamps. They could be exchanged for prizes.

Loyalty programs became really popular in the 70s and 80s. They began to be used not only in trade. For example, American Airlines introduced an accumulative bonus system for flights.

In the 21st century, loyalty programs have been successfully used in almost every field:

• trade;
• medicine;
• in the entertainment business;
• in the hospitality industry;
• banking, etc.

For example, after Turkish Garanti Bank introduced a loyalty program, the rate of issuance of its bank cards became 2.5 times higher than that of its competitors. In Australia, thanks to loyalty programs, the use of credit cards increased by 20%.

In our article you can read about such a way to increase brand loyalty as event marketing.

Loyalty program: development and implementation

1. To develop a loyalty program it is necessary to make a list of goals that the company wants to achieve. A loyalty program can help achieve these goals:

• attracting new clients;
• retention of existing customers;
• prevent competitors from poaching customers.

Attracting each new customer is costly for companies. Retaining old customers is 7 times less costly than attracting new ones.

2. Drawing up a portrait of the company’s client and his needs. At this stage it is necessary to understand which of the existing loyalty programs will suit the company’s clients. It is necessary to decide what will be emphasized in the loyalty program:

• on the special treatment of clients;
• on services available only to members of the loyalty program;
• on special pricing.

3. Implementation. First, most companies implement a loyalty program not in the entire network, but in individual establishments. If it is an online store, they start with a trial version of the program. This is a kind of trial period, during which data on the effectiveness of the program is collected. If it is successful, the loyalty program is launched in full.

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Bonus loyalty program

Most often bonus loyalty programs are used by grocery stores and companies that sell FMCG goods (fast moving consumer goods).

According to research, a loyalty bonus program is more effective than discount cards. Unlike a discount, consumers perceive a bonus as a real gift. Such a loyalty program evokes positive emotions in people and binds them to the company.

The loyalty bonus program most often exists in 2 variants.

1. A customer receives a bonus after making a purchase for a certain amount. For example, the Boloco restaurant chain (USA) gives its visitors an extra dish for every 50 dollars spent.
2. When When buying a certain amount of goods the client receives one more as a gift. For example, the Eldorado chain of hardware stores made every 3rd item (with the lowest price) in the receipt free of charge.

Pros

1. Easy implementation of such a system;
2. Requires no additional action on the part of the buyers;
3. Direct communication with consumers.

Minuses

1. You need to constantly research consumer preferences and tailor your bonuses around them.
2. The bonus should be in line with the consumer’s costs.

Multi-level loyalty program

The way this loyalty program works is that customers are divided into several levels. Most often consumers are given membership cards by level:

• silver;
• golden;
• platinum.

A multi-level loyalty program provides for long-term cooperation between a company and consumers. That is why this scheme is mainly used in areas where people turn to repeatedly: airlines, hotels, beauty salons, banks. The more often people use the company’s services, the greater the reward they receive.

Virgin Atlantic(USA) has introduced a status system into its loyalty program. After registration, a member of the program gets the opportunity to buy tickets at a discount on holidays. When moving to the next level, the program member gets priority boarding and the right to check-in for the flight out of turn. Promotion to the next level depends on the number of flights and air miles.

Pros

1. Consumers receive affirmation of their importance to the company.
2. A clear system of status accrual.
3. The program is aimed at a long-term perspective.

Minuses

1. Thoroughness of level miscalculations. If the client decides that it takes too much time or expense to get to the next level, they will not participate.
2. Expensiveness. Databases need to be constantly updated and multiple clients need to be coordinated. This requires a financial outlay.

Loyalty program: access to VIP features for a fee

Such a loyalty program is used mainly in online stores. After paying a certain amount, the client receives additional features. For example, accelerated delivery of ordered goods.

Amazon has created a loyalty program called Amazon Prime. Each customer who signed up for it for an additional fee receives special features. First of all, they get access to additional content on the site and the Amazon virtual library. Also, members of the Amazon Prime loyalty program receive free shipping.

Pros

1. Customers want to quickly recoup the money spent on service fees and shop more often.
2. Ability to implement customized offers for each client.

Minuses

1. A complex program implementation scheme;
2. There is a risk that such a program will not pay off.

Customer loyalty program: shared values

A consumer may choose a certain company or brand because they promote values that are clear and close to him. For example, a person who opposes animal experimentation will buy cosmetics and household chemicals from manufacturers with the same principles.

This is H&M’ s way of caring for the environment and accepting old clothes for recycling. Anyone can come to their boutique and donate unwanted clothes. The collected clothes are sent to recycling or commission stores. H&M sends the money received in this way to charitable organizations. Customers receive a discount in the chain’s stores for every kilogram they bring in.

Pros

1. The company develops a positive image.
2. Customer confidence is growing.

Minuses

1. Such a loyalty program is not designed for the general public.
2. The stated principles must be carefully adhered to so as not to undermine customer confidence.

Partner loyalty programs

Sometimes, to attract customers, different companies may combine their loyalty programs. Thus, partner or coalition loyalty programs are formed. Bonuses and discounts received from one company can be realized by the client in another.

For example, the partner loyalty program is used by the American financial company American Express. It has a lot of partners, and therefore bonuses. For example, among American Express partners there is Enterprise Rent-A-Car. A client who rents a car there receives bonuses that can be spent at any company participating in the partner program. For example, AT&T, a telephone service provider.

Pros.

1. By having multiple partners working together, the cost of maintaining the program is reduced.
2. Clients can use the bonuses received in different areas, rather than being limited to one. This makes the loyalty program more attractive for clients.
3. Mutually beneficial cooperation between different companies. Organizations expand their client base.

Minuses

1. The more partners there are, the more difficult it is to implement such a program. It requires perfect collaboration.
2. The need to constantly monitor the actions of partners.

Loyalty programs with game elements (gamification)

They are most often used in online stores, retail chains and the B2B sector (business to business or “business to business” – selling goods and services to corporate clients).

A game element integrated into the purchase process can stimulate consumer interest. Most often such a loyalty program involves contests. However, there are also non-basic variants.

For example, GrubHub specializes in food delivery. Its customers can get a free dessert or drink if they take part in the game. To do this, you need to make 3 orders for any amount. After that, 4 cards appear on the screen, and the customer must choose one, under which the prize may be hidden. The possibility of winning is 1 in 4.

Pros

1. Customers are motivated to buy from a particular company.
2. The loyalty program keeps customers entertained.

Minuses

1. It is undesirable to make such programs permanent – consumer interest decreases.
2. Customers must make several purchases before receiving a possible prize. This reduces consumer motivation. Not all customers are willing to spend significant amounts of money.

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Developing a customer loyalty program: ways to test its effectiveness

1. Launching a pilot version. This method is best suited for large retail chains. A large number of stores allows you to create several test groups.
2. Cohort analysis. In marketing, a cohort is a group of customers who share a common characteristic, such as date of purchase. Such analysis allows you to trace the dynamics of purchases and patterns of customer behavior.
3. Look-alike analysis. It can be used to check the effectiveness of a particular loyalty program. For this purpose, customers from one segment are taken. Some belong to the loyalty program, others do not. It is necessary to compare their purchasing activity.
4. Result Analysis. To carry it out, it compares the indicators of purchases before and after the introduction of the loyalty program. It is necessary to assess the size of the average check, the dynamics of purchases and the number of customers.
5. Control groups. Necessary to check the effectiveness of the customer loyalty program. According to statistics, a dissatisfied customer tells 10 acquaintances about an unsuccessful purchase. The same reaction is caused by an inappropriate loyalty program. This creates a negative image of the company. Therefore, the development of a loyalty program should be handled by professionals.
6. Consumer Loyalty Index (Net Promoter Score). A customer is asked a question about willingness to make a repeat purchase and recommend to acquaintances? There is a scale from 1 to 10 for the answer. Customers who gave a score are divided into several categories:

0-6 – Critics;

7-8 are neutrals;

9-10 – promoters.

This method should preferably be used in combination with others. It shows customers’ attitudes towards the company or products, but not the reasons that caused them. It is the other method that is needed to identify the reasons for approval or dislike.

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