Loyalty Programs

Loyalty programs are everywhere ... whether it's the local pizzeria that hands you a card with each pie (buy ten, get one free!), a national sporting goods retailer that accrues bonus points in your account with every purchase, or a supermarket that prints custom coupons based on what's sitting in your shopping cart. Take a look at your key chain. How many bar coded loyalty program fobs do you see?

I freely admit to having resisted the local supermarket's loyalty program for years-on-end.

In short, I wasn't keen on the intrusion into my personal tastes. (Why should I let them know I like Quisp over Quake, for Pete's sake!) But I finally gave up and got with the program ... after becoming fed up with not getting the published prices on the bargains of the week. By surrendering a bit of personal information to the supermarket's loyalty program, I was able to cash in on those coupons.

Loyalty programs are found at the core of many frequency marketing efforts. By recognizing and rewarding faithful customers, the relationship between the customer and company is enhanced, as is the bottom line. Determining the lifetime value (or LTV) of a customer is a crucial factor in any loyalty program.

Adobe defines lifetime value as:

Viewing the value of a customer in terms of how much product or service he will purchase during his lifetime, not just on the current transaction. By focusing on LTV, a marketer gets a much more realistic picture of the value of keeping customers loyal.

Most small shops run informal loyalty programs. The collected data might reside solely on the paper cards they hand out and punch. Larger stores, on the other hand, rely on serious database marketing efforts. With a small shop, the LTV of a customer might resides solely in the head of the shopkeeper ... as in when the guy making the pizza knows your name. He knows how many pies you order every Friday night. And he probably knows what you're going to order before you do.

In a chain store, that customer data needs to be available to other locations within the organization. Personal recognition between the customers and clerks is rare. In these situations, the loyalty program may develop the data and serve up offers based on past purchases. In other words, big brother meets big box store.

National or regional chain loyalty programs require more sophistication, lest the programs become a target for abuse, as recently was the case with Subway's Sub Club loyalty program.