Everywhere you look there are pros and cons of customer loyalty programs. Small businesses often believe they need them in order to survive and some of the larger organizations wish they never would have started. So, which way should you go?
There are few ways to differentiate your business and sometimes offering a customer loyalty program seems like it is a competitive advantage because the customer has an abundance of choices. Businesses can often find themselves trapped in price wars because they have failed to show competitive advantage. Therefore, creating customer loyalty programs offer something different. They offer a non-price based competitive advantage that provide customers with the advantage of incentives to reduce the chance the customer will seek out a competitor. These programs can be fairly simple or quite complex depending on how you plan to add “better” value to your customer.
The advantages of customer loyalty programs have long been debated. There are many ambiguities and doubts in the minds of companies looking to offer sustainable programs that lead to a profitable business model.
The size of the reward plays a major role in customer satisfaction with loyalty programs. With small rewards, the business is merely saying “Thank you” in a different way. It is unlikely that the customer will express loyalty to one business over the next with a small reward loyalty program. However, small rewards that increase in value based on unique spending habits, could increase the amount of each customer transaction when they are purchasing from the business. Some businesses accomplish this through tiered loyalty programs which offer different and better benefits as the customer spends more with the business.
Customer loyalty programs that are complex tend to push most customers away because the added value is perceived as to difficult and not worth the energy and time to figure out.
Programs that are well organized and managed can lead to greater profitability and a sustained customer base. Marketing activities would heighten, however the cost of marketing could decrease because now, with a loyalty program, your marketing department can obtain demographic information and sales tracking that allows them to create more loyalty, more sales, better discounting, brand or service shifting opportunities, and direct access to the customer for targeted marketing efforts.
Some of the negative consequences include the degradation of the customers perceived value of the business and it’s services or products, customers that are not part of the loyalty program may feel like they are getting a bad deal, and loyalty programs may result in the loss of a business’ “best” customers due to customers that typically spend less receiving better offers in an attempt to increase the per transaction value. Finally, since every customer could potentially encounter a unique set of pricing, transparency becomes questionable leading to negative perceptions of the retailer or price based comparisons with other businesses.
End result, customer loyalty programs, when kept simple for the customer and managed well by the business, are not ineffective. There are many people loyal to a brand, store, or other business for many reasons and the loyalty programs they offer reinforce that loyalty. Viewing customer loyalty programs as an opportunity to reinforce loyalty, instead of creating loyalty, will bring your business better results.
April Salsbury, MBA is a strategist, an analyst, an operational guru, a recognized leader and C-suite global healthcare executive with drive and focus for competitive markets. Co-host of The Business Forum Show and regular contributor to various business journals, she possess multi-functional and multi-national competencies with more than 15 years experience in business and healthcare. Her expertise is in invigorating revenue growth and infusing value of lean practices in growing companies through improvements to cash flow and operations management.
Fueling revenue, growth and profit, Salsbury & Co. is a consultancy firm focused on helping businesses and healthcare organizations achieve excellency. Our specialists have executive experience combined with deep functional expertise to provide our clients with services that drive real impact and results.
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