The Role Of A Loyalty Program In Contemporary Business Climate

The Role Of A Loyalty Program In Contemporary Business Climate
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Look around you. Everyone seems to be busy collecting points, racking up miles, and chasing deals. It’s hard to imagine a person who doesn’t carry a couple of loyalty cards in their wallet these days. It all looks like a hype train nobody wants to miss. And guess what – it works. Even the smallest personal discount can make any store a lure to buy from.

If a one-size-fits-all formula of a successful marketing strategy existed, then a loyalty program would be one of the most important variables in it. Customers want to feel special, and loyalty programs give them the sought-after sense of exclusive treatment and engagement. According to a recent study, 77% of shoppers are more likely to continue doing business with a company that offers a loyalty program.

Brands, in their turn, need a way to encourage buyers to stick with their products and services. By providing a personalized experience and perks, businesses retain customers and get repeat purchases.

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Common types of loyalty programs

Customer loyalty programs come in a variety of forms. While some brands end up leveraging one model, others may combine a few to engage and retain their clients more efficiently and thereby increase profits. Here’s a roundup of the most popular strategies:

  • Points program

Unless you live on an uninhabited island, you’re probably enrolled in at least one of these. The idea is simple: when making a purchase, the customer earns points which, when accumulated, can be spent on future purchases. This program is optimal for businesses dealing with customers who buy often but don’t spend much during the touchpoints.

  • Tiered program

In a tiered loyalty program, the customers move up on a reward scale as they purchase more. The upgrade to the next level with more benefits is a matter of reaching a particular number of points. New customers who make low-value purchases, though, might find this approach disadvantageous.

  • Fee-based program

Also referred to as a premium loyalty program, this model involves a subscription fee that makes customers eligible for instant benefits and VIP service, such as free shipping. In a 2017 survey, 37% of customers said they didn’t mind paying a fee for access to special perks. Although not everyone is willing to pay for membership upfront, this tactic is a great way for brands to build and maintain a lasting relationship with their best clients.

  • Coalition program

Businesses can use coalition loyalty programs, or reward partnerships, to cover larger customer audiences and thereby extend their marketing reach. The gist of this technique revolves around providing discounts and points that are valid across associated brands. Whereas these programs may lack a clear-cut differentiation between brands, they are enticing to join due to the flexibility and convenience they deliver.

It’s not about points alone

Most people associate a loyalty program with a plastic card they show at purchase time to get their bonus account replenished with extra points. This isn’t a misconception altogether, but the industry has evolved beyond that. Moreover, simply rewarding purchases is a slippery slope. Why? Because the only relationship that can be built this way boils down to incentivizing future purchases, period. In other words, you only matter to the brand as long as you buy from it.

A good loyalty program is one that complements a retailer’s repertoire with flavors of excitement, surprise, entertainment, and privileged attitude towards customers, even ones who haven’t dropped by for quite some time. In the aftermath, shoppers are happy and forward-thinking businesses benefit from the interaction to the fullest.

Running loyalty programs businesses should not forget about cybersecurity. To run a program and collect customer data, most often you need to use special software tools which can bring additional risks and even ruin the whole digital infrastructure with things like ransomware. Before using any new platform it is good to thoroughly instruct your employees on how to use it. Basic security practices like strong passwords, backups, VPNs and antivirus scans are always handy as well.

Article by David Balaban

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Jacob Wolinsky is the founder of, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at) - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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