Customer loyalty programs are increasingly popular and if companies haven’t already got at customer club most managers are seeking to get one.  According to CBC news no less than 93.6 per cent of Canadian consumers belonged to at least one loyalty program in 2009. Loyalty programs can be very beneficial to any business if implemented correctly. In Q3 of 2009 the CMO council did research on “Ways that Customer Loyalty Investments Affect Marketing Effectiveness” and 59 % of respondents agreed that it “Improved customer retention and value” which is of huge value to almost any company.

But the fact is that loyalty programs have been around for many years just take a look at the airline industry. Airlines have successfully implemented and used customer clubs even before the digital age. So why the sudden boom in loyalty programs? The Internet certainly has had its influence. With e-mail, websites etc. it is now easier than ever to gain customer data and the internet has made it much easier for consumers to sign up for a given customer club.

In the article “Loyalty Programs: A Thing of the Past?” featured in Adweek the author questions the traditional loyalty programs. He criticizes that they are only targeted the 10-15 percent of customers that are in the top tier and the programs are only beneficial to this target group. He points out that the remaining 85-90 percent are typically neglected, as they don’t spend enough money to get sufficient points to benefit from the rewards the programs offers. For these people the loyalty programs does nothing he argues.

It is here business intelligence comes into the picture. By combining customer data, gained from the customer clubs, with analytics-based systems firms can much better target all company customers and target them more properly. The aim is to digitally create a bond or a one to one relationship between the company and the individual customer that the will ultimately result in higher customer loyalty.

When reading through the literature about what makes a loyalty club succeed one thing especially stands out: there needs to be a real perceived benefit from joining the loyalty program or club. According to US Internet users the two main benefits from a loyalty/reward program is “Discounts and savings” (66 % of respondents) and “Better deals and offers” (43 %) (CMO council survey). Factors such as “quicker and better service” or “special considerations” were only seen as a benefit for respectably 15 and 11 percent.  This is confirmed when you look at data on main concerns about loyalty/reward programs. According to another CMO research marketers worldwide find that the two main customer concerns about loyalty/rewards programs are “Little or no added value to becoming a member” (28 % of respondents) and “Rewards have too little or no value” (24 %). This points in the direction that Internet marketer that considers doing a customer club online should be very aware that they are offering real value in exchange for customer participation in the club. In fact when you ask US Internet users about which “Factors that would encourage them to join or participate more in loyalty/reward programs” the main factor stated by no less than 70 % was “additional financial inducements or savings”.

The article “Best loyalty programs on the internet” in E-commerce Times points out other obstacles for making a successful loyalty program on the Internet. Any loyalty program or club is very dependent on getting information from their customers. If you are a trusted or well known brand such as American Airlines this might not be a problem, but when smaller unknown companies tries to get data out of their customers they might be more reluctant.  This can be a huge drawback as individual customer data is one of the most important assets of the customer clubs. So making customers feel comfortable about giving personal data is key for smaller more unknown companies.

In addition the article stresses that the best online loyalty clubs are the ones that had a lot of success offline, which is typically airlines, casinos and hotels. These industries usually have years of experience in the area. According to John Bartold, account director at loyalty marketing firm Frequency Marketing, the rate of success is higher if you have an established offline program that you want to transfer to the internet. Online giants such as Amazon and Ebay have attempted to create online loyalty programs, but Bartold argues that in general the concept is more difficult to implement successfully for pure online players. Even though people shop online they don’t like to get points for more online shopping. According to Bartold solid online loyalty programs blend online shopping with offline rewards, such as hotel-room discounts or free flights.

There is still a lot to be learned and surely gained from loyalty and reward programs. The Internet has certainly made it easier for marketers to interact with the customers and create more interactive online membership clubs. Often you can go to the club website to check you point status, your purchase history, browse possible rewards and many more. In addition the companies can learn a lot from their customers through the collection of individualized data and it can be used in many beneficial ways. But there are many areas of loyalty programs that still need to be examined. Does the pure online business’ have a smaller chance or succeeding or do we just need to figure out how to create them better? There is also many ethically consideration that should be taken into account. Where are the boundaries for what we can use consumer data for? Is it okay to give customers grocery advise based on their past grocery shopping? Can we sell customer information to a third party?

All though we still need to gain more knowledge on the use and implications of customer loyalty/reward programs they undoubtedly has huge potential. According to Donovan Neale-May, executive director of the CMO Council, the loyalty/clubs provides a better understanding of customer behaviors, predispositions, intentions and preferences, which “enables more effective and relevant messaging.” But remember in return of all this and in order to make customer sign up in the first place; it is very important that the companies offers and keeps offering real value that exceeds the cost of joining a loyalty program.

http://www.cmo.com/loyalty/loyalty-programs-thing-past http://www.ecommercetimes.com/story/32997.html http://www.cmo.com/loyalty/marketers-look-learn-loyalty