Page 330 - Duct Tape Marketing

314 Part V: Winning and Keeping Customers

The concept of loyalty programs took hold in the 1970s when airlines launched
the first frequent flyer reward programs. Over the past decade, as businesses
have put ever-greater emphasis on keeping current customers, loyalty pro-
grams have grown to the point that today the majority of consumers partici-
pate in at least one program, and businesses everywhere are working to figure
out how to add a loyalty program to their marketing efforts.

Before starting your own program, first choose one of the following loyalty
program goals:

ߜ To maintain customer spending habits in an effort to reverse the natural
decline in buying activity that otherwise tends to occur over time.

ߜ To increase sales by enhancing a feeling of inclusion and loyalty to your
business.

ߜ To show customer appreciation by providing rewards for past pur-
chases, which tends to inspire additional buying activity.

ߜ To collect information on customer buying patterns and preferences. Be
cautious, though: Customers can feel duped if your program looks more
like an effort to conduct research than to extend rewards.

The next step is to design your program, using one of the following loyalty
program formats:

ߜ Buy-ahead discounts. This kind of program aims to lock in loyalty at the
time of a first purchase with a card that entitles the buyer to an immedi-
ate bonus along with discounts on future purchases.

Benefit: The business receives up-front revenue and customer commit-
ment due to the lure of the ongoing discount and the constant reminder
provided by the membership card. The customer receives valuable
rewards extended only to those participating in the program.

Downside: Because they require a purchase, customers view buy-ahead
discounts more as product promotions than customer rewards.

ߜ Purchase-level rewards or discounts. These programs offer customers a
free gift or discount when they pass a certain spending level. For instance,
a clothing retailer might offer customers a discount when sales in a single
year reach $500. Or a hotel might offer a fifth night free.

Benefit: The program inspires customers to consolidate their purchases
at a single business to become eligible for the purchase-level bonus.

Downside: The program sometimes requires a fair amount of small print
to explain what kinds of purchases apply, what spending level needs to
be reached, what time period is involved, and what discount applies. Its
appeal relies upon the simplicity with which it can be explained and the
significance of the spending-level reward.