Pros and Cons to Customer Loyalty Programs: How Deep or Shallow is Yours?

Payments Leader

Posted on July 31, 2013

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Which side of the scale are you on when it comes to arguing for or against Customer Loyalty Programs? Do you see benefits and value, or do you find them a waste of both time and resources?

When it comes down to it, there really are just two points to this discussion: is there a case to be made for acquiring new and retaining existing customers to drive increased spend, or is your company wasting resources rewarding customers who would probably be loyal without your program?

There are certain marketing and other business professionals out there who might argue another element, nay another facet to this financial gem we call Loyalty. What if, instead of the consumer, the focus of the Loyalty program first shines on the retailer, financial institution, or any other entity? If this is indeed the case, then the initial benefit to the firm may be improved communications with its most frequent customers. The customer becomes the secondary recipient of the benefits of a customer loyalty program. This is especially important as more often than not; loyalty programs tend to overlook (at least to some degree) a company’s most loyal customers. Not only do some firms concentrate most heavily on acquisition, they fail to leverage a loyalty program to their advantage by learning more about their existing consumers and finding more practical ways to effectively communicate to them.

Market Your Loyalty Program

If we overlook the inherent benefits of more direct contact with customers and improved communication, then it is easy to think of a Loyalty program as a waste of marketing money or an expensive discount distribution network. Instead of walking in a puddle, increase the depth of your Loyalty program and dive into a deeper understanding by leveraging multiple incentive types and tools for “loyal” customers to search, shop, purchase and share their experience with others. These ‘loyal’ customers are walking billboards ready to grow the strength of your brand. Make sure your customer rewards Marketing Plan includes a bullet for that gun.

In my opinion, one of the most important (if not the leading) benefit for deploying a loyalty program is to obtain new consumer data (both behavioral and demographic). Real value of the customer reward/loyalty program lies in the effective ability to collect accurate and useful data about the purchase options, search terms, shopping methods and basic circumstances, and to put it towards good use. Sometimes, marketing professionals spend so much time trying to capture every data point, that they lose primary focus of just collecting enough data to drive some level of behavioral changes.

This data isn’t collected for the future use of some government-backed conspiracy theory, but rather the immediate use of the proactive client who wants to better understand the shopping habits and preferences of their consumers within their marketplace.

There are many components to loyalty programs and vast amounts of historical data that speak to the value of implementing one. The real key lies in the ability to connect all of the dots. All the information in the world about your consumers and their spending habits do no good, unless the right people can connect the dots to improve both your business and the shopping experience to your most loyal customers.

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Payments Leader

Payments Leader from FIS provides insights on credit, loyalty, fraud and emerging payments strategies through blog posts from our industry experienced authors.