Just like friendships, faithfulness provides us with imperceptible cognitive bonds with brands. This loyalty can be maintained through schemes of various natures to lure us into a false sense of entitlement and greater willingness to part with our hard earned money. For any scheme to work we have to have a firm grounding of what needs to be done and what needs to be done right.

What is the aim?

First, we have to understand the purpose of the program. What are we trying to achieve? What are we trying gain? If we don’t know this then we are potentially throwing money at something with no guaranteed return. Nunes & Drèze (2006a) give five core strategic drivers for the use of loyalty programs.

• Encouraging additional purchases. Goods and services where consumption is flexible can be increased easily. Valued rewards, such as buy 4 get the 5th free, can lead to accelerated purchases by consumers and in turn increased overall consumption levels.
• Collection of customer data and consumer behaviour insights. The greater the amount of information held about a customer the more effectively and personally they can be targeted.
• Gain greater customer share. Encouraging customers to consolidate more purchases with a specific company rather than multiple ones.
• Reduce churn rate. Preventing customers from defecting to other companies by providing something others cannot offer. In other words, locking them in.
• Generate a profit. Besides revenues being boosted through additional sales, reward points can be sold on to other business to use as rewards for their own customers.

What components do we need designed right?

The possibilities for program design are endless but care must be taken to make it attractive for customers to use yet not result in unnecessary expenses being incurred. Some areas for thought are:

• Sense of Momentum. Research by Nunes & Drèze (2006b) has shown that the further a member is along in a loyalty program the more they use it. The term they call “endowed progress” gives a psychological push to not only jump start consumption but give faster consumption cycles by giving customers 2 free stamps on a buy 10 get one free card compared to none on a buy 8 get one free card.

• Type of Reward. Maritz Loyalty Marketing found non-utilitarian rewards that customers would not usually spend on, such as memorable treats, give the best results. It only takes a quick look at how you can spend your Nectar card points to support this.
• Customer Relationship Expansion. If a customer is willing to buy a product (x) amount of times to gain a free one, then they are likely willing to purchase the (x+1) as well. Rewards should help expand the customers ‘repertoire’ of purchases so instead of a free same product, a different product to promote additional future sales should be considered.
• Use of more than one Channel. Engaging with customers across multiple channels can give big benefits (Big Commerce, 2015). Whether this be through Chaffey’s (2010) channels such as social media, online affiliations or more direct offline approaches, consideration has to be given to the 33% of customers who view not having the right channels as a pet peeve (Capgemini Consulting, 2016).

Who’s doing it well?

Boasting over 8 million members Starbucks appears to be leading the way with their loyalty program by seamlessly integrating it into their mobile app. Even the CEO Howard Schultz states it is their most important business driver. The app allows customers to make and view their purchases & rewards in real time through use of simple yet effective QR codes (Forbes, 2014).

Air Canada’s “Earn Your Wings” program utilises gamification to give a unique twist of attractiveness for customers. When flyers check in at specific airports they earn badges as a form of virtual currency which build to form rewards. Further details on the campaign can be found here.

What’s to watch out for?

Unfortunately not everything can work all the time. A digital program can be design and delivered perfectly yet if your target audience are not tech savvy they will feel disheartened if they miss out on opportunities available to others (Tnooz, 2015).

Care must also be taken when collecting data on customers to ensure that companies comply with the Data Protection Act as set out in Act of Parliament (1998). Failing to do so will lose customers confidence.

Takeaway

Overall, when creating loyalty schemes we need to know exactly what our objective is, design a program that fulfils this in a manner that is easy to use and inspires customers to want to use it.

---

Act of Parliament. (1998). Great Britain Parliament. The Data Protection Act 1998. (Chapter 29). London: HMSO.

Big Commerce. (2015). How to calculate the cost of a loyalty program and why it’s important? [Online] Available at: <https://www.bigcommerce.co.uk/ecommerce-answers/how-calculate-cost-loyalty-program-and-why-its-important/> [Accessed 8th February 2016].

Capgemini Consulting. (2016) Fixing the Cracks: Reinventing Loyalty Programs for the Digital Age. [Online] Available at: <https://www.capgemini-consulting.com/resource-file-access/resource/pdf/reinventing_loyalty_programs.pdf> [Accessed 8th February 2016].

Chaffey, D. (2010) Applying organisational capability models to assess the maturity of digital-marketing governance. Journal of Marketing Management. Vol 26, No 3-4, pp187-196.

Forbes. (2014). Why Is The Starbucks Mobile Payments App So Successful? [Online] Available at: <http://www.forbes.com/sites/quora/2014/06/13/why-is-the-starbucks-mobile-payments-app-so-successful/#1f0610814c2a> [Accessed 8th February 2016].

Nunes, J. & Drèze, X. (2006a). Your Loyalty Program Is Betraying You. Harvard Business Review. Vol. 84, No. 4, pp. 124-131.

Nunes, J. & Drèze, X. (2006b). The Endowed Progress Effect: How Artificial Advancement Increases Effort. Journal of Consumer Research. Vol. 32, No. 3, pp. 504-512.

Tnooz. (2015). Hotel loyalty programs can bring digital rewards in real life. [Online] Available at: <http://www.tnooz.com/article/hotel-loyalty-programs-can-digital-rewards-in-real-life/> [Accessed 8th February 2016].