Loyalty programs seem to be everywhere these days.
From major airlines to local dry cleaners, it seems like wherever we go a company is offering us the option of joining their
rewards program or loyalty club.
So what are these loyalty programs and, more importantly, how effective are they?
What Is a Loyalty Program?
To my surprise, a good definition of loyalty program (LP) is hard to find.
Considering the amount of focus and resources directed towards loyalty programs in modern business,
one would think better definitions would be available. Below are the three best definitions I found, and ironically,
none of them were from a “customer service” site:
“Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behavior — behavior which is potentially beneficial to the firm.” Source: Wikipedia
“A rewards program offered by a company to customers who frequently make purchases.” Source: Investopedia
“A customer loyalty program is a structured and long-term marketing effort which provides incentives to repeat customers who demonstrate loyal buying behavior.” Source: About.com
Since the existing definitions are so weak and since I cannot very well have a post entitled “What Is a Loyalty Program” without defining the term,
I decided to take a stab at creating a more comprehensive definition myself.
A new definition of loyalty program:
A loyalty program is a system of structured rewards given to customers, usually in exchange for desired behaviors,
with the goals of increasing customer loyalty and collecting customer data. Loyalty programs use the psychological principles of reciprocity,
commitment and loss aversion to increase the likelihood of customer loyalty.
As I offered in The Definition of Customer Loyalty, if anyone finds a better definition than the one above, please feel free to share
it below in the comments.
Loyalty Programs Today
Many readers might remember S&H Green Stamps as the primary rewards program of the pre-Internet era.
I vividly remember getting those ever-familiar green stamps from the grocery store as a child and filling up those ridiculous books to get,
well… stuff. However, though a rewards program, the S&H program was not truly an LP, since it stretched across retailers and was not exclusive
to any one store or brand.
Modern loyalty programs are generally tied to specific brands,
such as Starbucks Rewards, or groups of related brands such as Hilton Honors.
As can be seen in the chart below, the prevalence of loyalty programs also varies greatly by industry.