User:Nautical Nomad/Loyalty Marketing

Loyalty marketing is an approach to marketing, based on strategic management, in which a company focuses on growing and retaining existing customers through incentives. Branding, product marketing, and loyalty marketing all form part of the customer proposition – the subjective assessment by the customer of whether to purchase a brand or not based on the integrated combination of the value they receive from each of these marketing disciplines.

The discipline of customer loyalty marketing has been around for many years, but expansions from it merely being a model for conducting business to becoming a vehicle for marketing and advertising have made it omnipresent in consumer marketing organizations since the mid- to late-1990s. Some of the newer loyalty marketing industry insiders, such as Fred Reichheld, have claimed a strong link between customer loyalty marketing and customer referral. In recent years, a new marketing discipline called "customer advocacy marketing" has been combined with or replaced by "customer loyalty marketing." To the general public, many airline miles programs, hotel frequent guest programs, and credit card incentive programs are the most visible customer loyalty marketing programs.

Premiums
Premiums are items that a retail customer can receive by redeeming proofs of purchase from a specific product or store. This was one of the first loyalty marketing programs.

Early premium programs
In 1793, a U.S. merchant started giving out copper tokens which could be collected by the consumer and exchanged for items in the store. This would be the first modern example of a loyalty marketing program, however, it is unclear whether these tokens were given out with the intended purpose of creating a loyalty program or simply to combat the coin shortage that existed during that time. The practice caught on and was used by many merchants throughout the 19th century. Sweet Home laundry soap, a product of the B. A. Babbit Company, came with certificates that could be collected and redeemed for color lithographs. Beginning in 1872, the Grand Union Tea Company gave tickets to customers that could be exchanged for merchandise in the company catalog of Grand Union stores. The company advertised this practice as "giving presents with our goods."

Loyalty Marketing Impact
Many loyalty programs have changed the way consumers interact with the companies from which they purchase products or services from and how much consumers spend. Many consumers in the US and Europe have become quite accustomed to the rewards and incentives they receive by being a "card carrying" member of an airline, hotel or car rental program. In addition, research from Chris X. Moloney shows that nearly half of all credit card users in the US utilize a points-based rewards program.

In recent years, the competition for high income customers has led many of these loyalty marketing program providers to provide significant perks that deliver value well beyond reward points or miles. Both American's AAdvantage program and Starwood Hotels' Preferred Guest program have received industry awards, called "Freddie Awards" by Inside Flyer Magazine and its publisher Randy Petersen for providing perks that customers value highly. These perks have become as important to many travelers as their reward miles according to research.

In his book, Loyalty Rules!, Fred Reichheld details the value to customer referral on the growth and financial performance of dozens of leading US firms. Reichheld purports that the measurement of company advocates, or promoters, is the strongest single measurable correlation between customers and corporate performance. Similarly, Chris X. Moloney has presented new findings (Loyalty World London 2006) that showed a magnetic value to a company to promote and measure customer referrals and advocacy via research and marketing.

Customer Service and Retention Statistics
These statistics demonstrate the importance and effectiveness of having positive relationships with consumers as well as offering programs and rewards that encourage loyalty. The idea that keeping existing customers is far more cost-effective than selling to new customers is also reflected below.


 * 69% of consumers in the U.S. claim that customer service is "very important" when they are considering different brands.
 * 74% of millennials say they would switch to a different company due to poor customer service, and around 85% of gen X and baby boomer consumers would claim the same.


 * Consumers in paid membership loyalty programs are 62% more likely to spend more money on that brand and 59% more likely to choose that brand over competitors.


 * Selling to existing customers has a 60-70% success rate while selling to new customers has a success rate of only 5-20% depending on the product.
 * A 10% increase in customer retention is significant enough to raise a company's value by 30%.

Customer Loyalty Statistics
These statistics demonstrate the power that a customer's loyalty can have. Consumer loyalties are often long-lasting yet can be created in a much shorter amount of time.


 * 58% of consumers state that they would have to have a "really bad" experience before they would consider switching from the brands they are loyal to.
 * 77% of consumers claim to have maintained a relationship with specific brands for at least 10 years.
 * 60% of millennials claim to have maintained a relationship with specific brands for at least 10 years despite being relatively young and having less time to form those loyalties.
 * 63% of consumers consider themselves to be loyal to a brand by their fifth purchase.

Loyalty marketing and the loyalty business model
Main article: Loyalty business model

The loyalty business model relies on training of employees to achieve a specific paradigm: quality of product or service leads to customer satisfaction, which leads to customer loyalty, which leads to profitability. Loyalty marketing is an extension of that effort, relying upon word-of-mouth and advertising to draw upon the positive experiences of those exposed to loyalty business model inspired ventures to attract new customers. Fred Reichheld makes the point in his books that one can leverage the "power of extension" to draw new customers.

The rapid expansion of frequent-flyer programs is due to the fact that loyalty marketing relies on the earned loyalty of current customers to attract new loyalty from future customers. Incentive programs that are exclusive must strike a balance between increasing benefits for new customers over any existing loyalty plan they are currently in and keeping existing customers from moving to new plans. Hallmark did this through devising a program that directly rewarded customers not only for buying merchandise and utilizing Hallmark.com, but gaining additional benefits through referring their friends.

The most recent loyalty marketing programs rely on viral marketing techniques to spread word of incentive and inducement programs through word of mouth.

Unpredictability of Consumer Biases
Consumers have biases when it comes to many product choices they make and tend to purchase the same brand of various products regardless of whether they consciously consider the product to be superior to its competitors. Brand loyalty is often not based in logic or rational thought which makes it hard to predict. Many times, consumers are drawn to products for something that has no effect on the product itself such as logos, slogans, and package design which makes rebranding a dangerous proposition for businesses but one with great potential for drawing in new customers.

A study from 1964 demonstrated the illogical nature of these biases by offering a group of women the choice of four separate loaves of bread each week over the course of twelve weeks. The loaves had identical packaging except for a letter on each package to indicate which loaf was which. Unbeknownst to the women, the loaves of bread were identical. Despite this, half of the women showed clear loyalties to one of the letters by the end of the study.

Methods of Cultivating Customer Loyalty
Customer loyalty is decreasing due to consumers being able to quickly access product reviews and find cheaper options. That does not mean, however, that working to create loyal customers is a hopeless endeavor. Here are some methods by which to do so.

Consistent Quality
A single defective or low-quality product could be enough to turn a customer away, so businesses must offer a consistent product. If consumers buy a product that lives up to or even surpasses all of their expectations, they are unlikely to look elsewhere when buying that product again. Consistent delivery on expectations can make a brand's reputation one of quality and trust which are big factors in forming relationships with customers.

Offer Benefits and Rewards to Existing Customers
Loyalty programs have been covered extensively throughout this article, and that is because they are so useful in getting customers to come back for more. Many businesses offer deals to new customers such as streaming services offering one week free trials. The existing customers, however, are neglected which can lead to them feeling unimportant. A company that rewards customers for their patronage is much more likely to retain them.

Transparency and Communication
Open and honest communication can build trust with consumers. It is easier than ever to communicate with consumers thanks to social media which can be used to inform consumers as well as obtain feedback from them. Keeping avenues of communication open makes customers feel heard and valued.