Tag: loyalty program

Building Loyalty Program Partnerships Wisely

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In less than two weeks from today, Plenti, a coalition loyalty program, will officially shut down. Created by American Express three years ago, Plenti had an impressive roster of partners, at one point including Macy’s, ExxonMobil, Rite Aid, Hulu, Expedia, among others. Despite its high-profile start, the failure of Plenti shows the many challenges associated with loyalty program partnerships. If you ever consider loyalty program partnerships, it is important that you do so strategically and judiciously.

The Business Case For Loyalty Program Partnerships

On the surface, loyalty program partnership is a great idea. It allows consumers to earn points from different businesses, making reward earning easier and more relevant to more consumers. This expands the potential market for the program. Running a joint program reduces the operational cost for each business. In the case of a dominant business-peripheral business partnership (such as the partnerships airline frequent flyer programs form with smaller businesses), the dominant business can make good money selling its program currency to its partners. Airlines, for example, are estimated to make between 1.5 and 2.5 cents per mile. With all these benefits, what could possibly go wrong? Continue reading “Building Loyalty Program Partnerships Wisely”

Reducing the Loyalty Gap

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Although loyalty programs seem to be everywhere, many question whether such programs are indeed effective marketing tools. Strengthening the case for the skeptics, recent news report a restaurant that shut its doors in just a few months because it offered a ridiculously generous loyalty program. This is of course an extreme case. In reality, loyalty program providers can fairly easily keep program costs under control through smart program design involving the right combination of program currency, point ratio and reward structure.

Some loyalty program problems are not so straightforward however and can be much more subtle and challenging to deal with. One such example is the concern that loyalty programs foster loyalty to the program rather than to the company. That is, “I love Starbucks Rewards” may end up ringing more true than “I love Starbucks”. In the long run, this is bad news for the company because it makes the business overly dependent on the loyalty program. If a competitor decides to offer a more attractive program, customer attrition is likely to happen. What can businesses do to reduce this loyalty gap and make loyalty program members more loyal to the company rather than just to the program? I want to share with you some insights from a research project I conducted with a colleague in Belgium. Continue reading “Reducing the Loyalty Gap”

Do You Need a Loyalty Program?

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The most recent Loyalty Census from Colloquy pegs loyalty program membership in the US at more than 2 billion, up 16% from 2008. Perceived value of points earned through loyalty programs is estimated to be $38.83 billion. With this much activity going on, you may be tempted to offer a loyalty program for your business too. But do you really need a loyalty program? I’d like to address this question in this post. Let’s start by taking a look at the pros and cons of having a loyalty program.

Key Advantages of Having a Loyalty Program

  • It encourages consumers to concentrate their purchases in your company so that they can reach a reward faster.
  • It increases switching cost so that consumers who have already earned points through your loyalty program are less likely to jump ship to a competitor.
  • Compared with other promotions such as price discounts, a loyalty program incurs delayed promotional cost, because consumers make purchases first and get rewards later only after they have accumulated enough points.
  • Related to the above cost issue, not all points earned through a loyalty program translate into reward costs, as there will always be some consumers who never reach the reward threshold or who never redeem their points.
  • A loyalty program offers a way to capture consumer transaction history and can lead to more in-depth understanding of your customers.
  • If you have a sizable business such as an airline, a loyalty program can be a revenue source as you can sell program currency (e.g., miles, points, etc.) to partner businesses.
  • A loyalty program, when properly designed, can make your best customers feel appreciated and become more loyal.

    • Continue reading “Do You Need a Loyalty Program?”