Customer Loyalty Programs

The other day I went to Costco to replenish several items in our home. As I was checking out the cashier called someone over who pulled up my purchase records. Turns out that if I upgraded my membership I could earn money back on my purchases; enough to more than pay for the upgrade. Why not?

Now why would they offer to give me money back on my regular purchases? Because they know that now I will choose Costco over the grocery store or another discount warehouse. They increase their volume without advertising or marketing. This is a customer loyalty/reward program that works. It effectively costs them nothing and they’ve increased the odds that their current clients will buy more.

Panera Bread Bakery-Cafes had a loyalty/reward program where you could get a free cup of coffee after the purchase of ten cups. They had to discontinue the program because someone created counterfeit cards and offered them on the internet.

So, what can we learn from these examples? First, it’s a great idea to offer a customer loyalty/reward program. It’s less costly to keep current clients than it is to find new ones. Add to that the idea that you should try to capture all of the business you can get from your current clients and you’ve got the foundation for a loyalty program.

Second, make sure it’s something easy to implement and explain. If it’s too complicated no one will use it because they won’t understand it. Moreover, you don’t want to create a plan that is costly.

Third, create a program that can’t be hi-jacked. Consider the Panera example. The loyalty card was too easy to duplicate so someone did. Unfortunately, there are unscrupulous people out there.

Interestingly, participation in loyalty/reward programs is up in this recession. According to Colloquy research. “U.S. consumer participation in rewards programs is on the rise across all demographic segments, . . . Consumers are leaning on loyalty programs to stretch household budgets further by earning rewards for their purchases.“

What does this tell us? That using loyalty/reward programs can be an effective strategy for increasing revenues even in a recession.

Beyond the lessons learned from the examples above is the understanding that in order to have customer loyalty you must provide an excellent client experience. It will do you no good to have a program if your product, service, and/or customer service is sub-par. Think about it. If the experience isn’t good there isn’t a program in the world that is going to keep clients coming back for more. So, in reality, customer loyalty/reward programs begin with customer service.