Loyalty Marketing

Explore the Strategy of Loyalty Marketing

Loyalty marketing

Chances are, if you board an airplane more than once a year, you’re enrolled in some sort of frequent-flyer miles program. And why not? If you're already flying for business you have the opportunity to be rewarded for a required trip. Meanwhile, you can gain additional miles by using your enrolled credit card—a program that benefits you, your airline, and your credit card company.

With the frequent-flyer programs developed and popularized in the 1980s came a revolution in loyalty marketing. Throughout the 80s and 90s, enrollment in loyalty programs grew at double-digit rates—including by 33 percent in the year 2000, due to the emergence of Internet-based loyalty programs. Since then, growth has slowed somewhat—if only because of the omnipresence of such programs in the market.

What is loyalty marketing?

Loyalty marketing refers to building trust among recurrent customers, rewarding them for continually conducting business with a company. For many companies, 80 percent of all their business comes from 20 percent of their customer base. (See also Remarketing)

A Few Companies with Loyalty Cards

Kroger Best Western
Safeway Holiday Inn
Albertsons Marriott
Vons Hilton
CVS Pharmacy Pilot Travel Centers
True Value Panera Bread
Best Buy Red Robin
Sears Starbucks
Staples Every airline
Office Depot Gas rebate cards
Barnes and Noble Cash-back cards

In previous generations, loyalty programs often came in the form of redeeming proofs-of-purchase for special products. Today, they are more commonly operated through card purchases using digital information. In turn, this digital information can be used to discover more methods of instilingl and reinforcing customer loyalty.

Who employs loyalty marketing?

The travel industry has been one of the primary developers of customer loyalty programs, and continues to provide such programs to consumers. Airlines offer frequent flyer miles, and hotels likewise have frequent guest programs; customers earn points on flights and hotel stays that can later be redeemed as discounts on future purchases. (See also Marketing Airlines)

Credit-card companies are a major provider of loyalty incentives, offering points, cash back, and other rewards for making purchases with their cards. Often they partner with other businesses (including the travel industry), offering additional discounts for shopping at specific places. Besides credit card companies, loyalty programs are common among grocery stores, with about half of them offering some sort of club card to reward loyal customers; certain retailers (for example, both Staples and Office Depot have loyalty cards as part of their competition for the same customers); and restaurants (such as Red Robin’s Red Royalty card, which rewards customers with a free burger after so many purchases).

For what kinds of customers is loyalty marketing effective?

Loyalty marketing concentrates on strengthening the relationships with customers a business already has. Therefore, customers who make regular purchases—for example, who shop at the same supermarket every week, or eat at the same restaurant at least once a month—are most impacted by a rewards program, as their repeated business earns them more rewards.

New customers may be reached through incentives, and through referrals from existing customers—but this depends upon earning and maintaining the loyalty of the original customer base (See also Referral Marketing). Additionally, depending upon the complexity of the loyalty program and the technology implemented, more specific market segments within the customer base can be targeted for special rewards. For example, online travel-brokerage agencies such as Expedia and Trip Advisor can track website visitors who’ve been exploring (but not booking) possible trips, and follow up with special offers to those who have enrolled with the site.

How is a loyalty marketing campaign developed?

Ultimately, customers became loyal through repeated satisfactory (or better) interactions with a business; by extension, this depends upon the business providing a quality product and quality service. Only after these aspects of a business are in place should it consider developing a loyalty program—no incentive will entice customers to purchase low-value products or endure low-quality service. Therefore, the launch of a loyalty program should be reinforced with employee training; if the promotional end of your campaign is successful, your customers will have more interaction with your company and employees, with every one of these interactions a chance for building customer relationship (or destroying it). (See also Internal Marketing)

Common Rewards of Loyalty Programs

  • Cash back
  • Points for free travel
  • Points for in-store redemption
  • Points for web/catalog redemption
  • Discounts
  • Upgrades
  • Members-only information
  • Members-only access

Next comes the selection of a specific rewards method and incentives. A simple and low-cost method for a small business might involve a paper card that can be punched or stamped with every visit, resulting in a free product once the card is filled up.

However, where opportunities allow, businesses should look to implement a system that can also be used to gather and store information; a loyalty card that can be scanned like a credit card will enable the business to track the volume and kind of purchases of each cardholder. This information can be used for market research, or to develop more tailored promotional offers to customers. Larger businesses will be able to develop this more through database marketing; but even mid-sized and many small businesses can afford some kind of customer relationship management (CRM) software, which will enable them to develop a greater understanding of their customer base, as well as create new possibilities for marketing promotions that build customer loyalty.

In order to market a new loyalty program quickly, offer an incentive simply for the act of signing up. A small reward immediately establishes the value of the program in the customer’s mind and experience. Furthermore, promoting the card should be a priority at the point of customer contact—the cashier at the point of sale, for example, or the server taking a customer’s order at a restaurant. This doesn’t even require a “push”; simply asking a customer for his or her loyalty card in order to apply the rewards will advertise to that customer both the existence and the benefit of the program. (See also Promotional Marketing)

Loyalty programs can also be combined with social media marketing. For example, a loyalty program at a coffee shop could accrue points every time a customer “checks in” via a social media application such as Foursquare, or offers a review of the product or service. Finally, loyalty programs can be further reinforced through brand marketing, which promotes the value of the company as well as its mindshare among customers; that loyalty card may be in their wallets, but you don’t want them to forget about it.

What career titles work with loyalty marketing strategies?

Marketing Manager

What do they do?

  • advise on product development, placement, pricing, and promotion in order to create an offering that lives up to all promotional claims, and results in repeat business
  • create and promote loyalty incentives and programs in order to encourage more frequent (and higher-value) customer transactions
  • monitor and adjust loyalty programs as customers use and respond to them
  • coordinate the efforts and messaging of various marketing initiatives, including loyalty programs, promotional advertising, brand and social media campaigns

Education and experience

What type of salary should I expect?

  • Marketing Manager
    Median annual pay: $116,010
    Top 10%: $187,199+
  • Database Manager
    Median annual pay: $75,190
    Top 10%: $116,870
  • Market Research Analyst
    Median annual pay: $60,250
    Top 10%: $112,560

Source: U.S. Bureau of Labor Statistics

Marketing managers have at least a bachelor’s degree in marketing or business management, accompanied by several years’ experience managing teams in sales, advertising, or related fields. Education preparing them for this career includes classes in marketing, market research, consumer behavior, and business management.

Database Manager

What do they do?

  • build and/or manage customer databases for information collected from registrations, and transactions with customer loyalty cards
  • use database software to generate information about aggregate customer buying habits, and make recommendations regarding product offerings to better suit the customer base
  • use database software to turn information on individual customer behavior into customized offers
  • negotiate communication between the marketing and database departments

Education and experience

Database marketers often have a bachelor’s degree in marketing and/or information technology. They must have a solid understanding of the computer hardware and software involved, as well as experience in managing customer data in a way that satisfies customer-privacy concerns.

Market Research Analyst

What do they do?

  • use a variety of methods to collect data about a company’s customer base, identifying the company’s strengths and weaknesses in terms of product and service
  • research the implementation and impacts of loyalty programs in businesses similar to their own
  • use data and statistical analysis to make predictions regarding the return on investment for proposed incentives in a loyalty program
  • collect and analyze data on customers’ response to a company’s loyalty program and incentives, and present results to decision-makers in the company

Education and experience

Market research analysts need at least a bachelor’s degree in market research (or related field, such as statistics or computer science), and must be able to use both personal and technology-based methods for collecting information. Analysts may begin their career in a number of data collection and analysis jobs, whether for businesses, non-profit organizations, or government agencies.

How can a marketing school help you in this field?

Effective loyalty marketing requires developing a business’ products and services as well as implementing any specific loyalty program. At a marketing school you will learn more than simply how to promote a business, but also how to manage important elements within it.

A marketing program will train you in how to better understand your market environment, including customers, competition, and constraints. Economics courses will teach you about identifying and responding to supply and demand, and developing comparative advantage to encourage market transactions. Courses in market research will teach you how to segment consumers and identify market opportunities among both new and repeat customers. Courses in consumer behavior will train you to predict how customers will respond to different communications and incentives. (See also Consumer Psychology)

A marketing program will also teach about aspects of business organization and management, including product development, distribution, pricing, and promotion. You’ll learn basic leadership skills required to coordinate and manage teams, and how to align their goals, so that every business unit is contributing to the same vision of success.

Additionally, any marketing school will emphasize the development of communications skills. In addition to taking specific classes on various communication environments, you’ll be required to practice and develop your communications and presentation skills in all of your classes. Professors in your classes will provide you with feedback, forcing you to develop your messages to maximum effect.

To learn more about what a marketing school can do for you, request information from schools with degrees in marketing, and discover what rewards are in store for you.

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