What came First, Customer Loyalty or a Loyalty Program?

Bob Legters
Chief Data Officer of Banking and Payments
Posted on July 23, 2013

Before customer loyalty programs ever existed, we still had loyal customers, didn’t we? Consumers made decisions based on the products and services they liked the most and went back repeatedly to purchase said products and services.

So why then, did we create a loyalty program? If our brands already had loyal customers, what was the need to give them, even more, incentive to do what they were already doing?

Simple: brands determined that loyal customers who came back repeatedly to purchase the same product or service required much less marketing dollars to motivate new spending than those who were not loyal. Thus, the loyalty program was born.

Are businesses then spending money on customer loyalty or rewards programs that would have otherwise been spent in advertising? In a sense, yes. Understanding they function quite differently from each other is even more important.

Loyalty Marketing is a Must

Advertising money should be spent acquiring new consumers. Loyalty program money should be spent making current customers feel good about your brand. So good, they don’t require much if any, loyalty advertising to continue their purchase behavior. Both aspects are necessary to the marketing equation. One builds new resources and new revenue streams, the other takes current revenue streams and encourages them to keep coming back.

Throughout the life cycle of your business, these two marketing strategies will probably ebb and flow. When advertising works its magic and brings in new customers, the need for customer loyalty may not seem as important because revenue is high. However, new customer acquisition is really the ideal time to begin a loyalty program in order to keep that customer returning but at diminished acquisition cost.

Adversely, when your customer loyalty program is overflowing with happy customers who are spending money on your brand, you may not feel the imminent pinch to advertise and bring in new customers. That may be the case if you aren’t interested in growing your business. For those who want to grow their business, the continuous flow of new customers, who then become loyal customers, is the key to success.

Understanding how these two strategies coexist is an important element to your business plan. Don’t just assume that if business is good, both your advertising and loyalty program are performing to the best of their abilities.

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Bob Legters
Chief Data Officer of Banking and Payments

For the past two decades, Bob has focused on products and services support for clients. He has spent 17 of those years in a leadership role with groups ranging from 5 to 200 employees. Bob’s unique experience allows him to efficiently operate at a level that exceeds the normal executive role of understanding and recognizing client and consumer needs in the payments space.