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Loyalty marketing

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Loyalty marketingis amarketing strategyin which a company focuses on growing and retaining existing customers through incentives.Branding,product marketing,and loyalty marketing all form part of thecustomer 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.[1]

The discipline ofcustomer loyaltymarketing 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 asFred Reichheld,have claimed a strong link between customer loyalty marketing andcustomer 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 cardincentive programsare the most visible customer loyalty marketing programs.[2]

History

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Retail merchandising

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Premiums

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Premiumsare items that a retail customer can receive by redeemingproofs of purchasefrom a specific product or store. This was one of the first loyalty marketing programs.[citation needed]

Early premium programs

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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.[3]Sweet Home laundry soap, a product of the B. A. Babbit Company, came with certificates that could be collected and redeemed for colorlithographs.Beginning in 1872, theGrand Union Tea Companygave 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."[3]

Trading stamps
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The first trading stamps were introduced in 1891, the Blue Stamp Trading System, where stamps affixed to booklets could be redeemed for store products.[4]The Sperry and Hutchinson Company, started in 1896 inJackson, Michigan,was the first third-party provider of trading stamps for various companies, including dry goods dealers,gas stationsand latersupermarkets.S&H Green Stamps,as the company was commonly called, opened its first redemption center in 1897. Customers could take their filled booklets of "green stamps" and redeem them for household products, kitchen items, and personal items. When the G.I.s returned from World War II the trading stamps business took off when numerous third-party companies created their own trading stamp programs to offer to supermarkets and other retailers.[5]

Marketing through children
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Marketers of retail products used programs targeted at children to sell to their parents through the use of premiums.Kellogg's Corn Flakeshad the firstcerealpremium withThe Funny Jungleland Moving Pictures Book.The book was originally available as aprizethat was given to the customer in the store with the purchase of two packages of the cereal.[citation needed]But in 1909, Kelloggs changed the book give-away to a premium mail-in offer for the cost of adime.Over 2.5 million copies of the book were distributed in different editions over a period of 23 years.[6]

At the beginning of the Second World War, radio played a dominant role in the promotion and distribution of premiums, usually toys that were closely related to the radio program. Many radio shows offered premiums to their listeners, butCaptain Midnightwas one of the best known. The early sponsor ofCaptain MidnightwasSkelly Oil,and parents could get forms to mail-in for radio premiums at the gas stations. Later,Ovaltinebecame the sponsor ofCaptain Midnight,and it continued the premiums through advertising on the labels and foil tops of Ovaltine that could be collected to exchange forCaptain Midnightpremiums and offering membership to the "Secret Squadron".[7]

Boxtops
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In 1929,Betty Crockerissued coupons that could be used to redeempremiumslike free flatware. In 1937 the coupons were printed on the outside of packages, and later the Betty Crocker points program produced a popular reward catalog from which customers could pick rewards using their points. In 2006, it was announced that the Betty Crocker Catalog was going out of business and that all points needed to be redeemed by December 15, 2006. With it, one of the longest loyalty programs ended a 77-year tradition.[8]

Prizes

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Prizesare promotional items—small toys, games, trading cards, collectables, and other small items of nominal value—found in packages of brand-name retail products (or available from the retailer at the time of purchase) that are included in the price of the product (at no extra cost) with the intent to boost sales.[citation needed]

Tobacco inserts
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Some of the earliest prizes werecigarette cards—trade cardsadvertising the product (not to be confused withtrading cards) that were inserted into paper packs of cigarettes as stiffeners to protect the contents. Allan and Ginter in the U.S. in 1886, and British companyW.D. & H.O. Willsin 1888, were the first tobacco companies to print advertisements and, a couple of years later, lithograph pictures on the cards with an encyclopedic variety of topics from nature to war to sports — subjects that appealed to men who smoked.[9]By 1900, there were thousands of tobacco card sets manufactured by 300 different companies.[10]Following the success of cigarette cards, trade cards were produced by manufacturers of other products and included in the product or handed to the customer by the store clerk at the time of purchase.[9]World War II put an end to cigarette card production due to limited paper resources, and after the war cigarette cards never really made a comeback. After that collectors of prizes from retail products took to collectingtea cardsin the UK andbubble gum cardsin the US.[11]

Trade cards to trading cards
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The firstbaseball cardswere trade cards featuring the Brooklyn Atlantics produced in 1868 by Peck and Snyder, a sporting goods company that manufactured baseball equipment. In 1869, Peck and Snyder trade cards featured the first professional team, the Red Stockings.[12]Most of the baseball cards around the beginning of the 20th century came in candy and tobacco products produced by such companies as Breisch-Williams confectionery company of Oxford, Pennsylvania,[13]American Caramel Company,the Imperial Tobacco Company of Canada,[14]and Cabañas, a Cuban cigar manufacturer.[15]In fact it is a baseball set, known as the T-106 tobacco card set, distributed by theAmerican Tobacco Companyin 1909 that is considered by collectors to be the most popular set of cigarette cards.[16]In 1933,Goudey Gum Companyof Boston issued baseball cards with players biographies on the backs and was the first to put baseball cards in bubble gum.[17]Bowman Gumof Philadelphia issued its first baseball cards in 1948 and became the biggest issuer of baseball cards from 1948 to 1952.[citation needed]

Modern packaged foods
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The most famous use of prizes in the United States (and the word "prize" in this context) isCracker Jackbrand popcorn confection. Prizes have been inserted into every package of Cracker Jack continuously since 1912.[18]W.K. Kelloggwas the first to introduceprizesin boxes of cereal. The marketing strategy that he established has produced thousands of differentcereal box prizesthat have been distributed by the tens of billions.[19]Frito-Layis a world icon in the field of in-package prizes. Besides being the current owner of Cracker Jack, the U.S. popcorn confection brand known for the "Prize Inside",[20]Frito-Lay also regularly includestazosandtattoosin packages of Lay's chips worldwide. In parts of Latin America, Frito-Lay has even introduced a brand calledCheetos Sorpresa(English: Surprise), which includes a licensed prize (from movies, television, and video games) in every 29–gram bag.[21]

Direct marketing pioneers

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Ward: the father of mail order

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Aaron Montgomery Ward's mail order catalog created a network that included mailing, mail order, telemarketing, and social media.[22]Today, the mail order catalogue industry Montgomery founded is worth approximately 100 billions of dollars,[23]and generates over 2 trillion only in [incremental] sales and supports till this day an estimated 10.9 million jobs either directly related to marketing industry or dependent upon it.[22]

Wunderman: direct marketing genius

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Mail order pioneer Aaron Montgomery Ward knew that by using the technique of selling product directly to the consumer at appealing prices could, if executed effectively and efficiently, revolutionize the market industry and therefore be used as an innovative model for marketing products and creating customer loyalty.[22]The term "direct marketing"was coined long after Montgomery Ward's time. In 1967Lester Wundermanidentified, named, and defined "direct marketing". Wunderman — considered to be the father of contemporary direct marketing — is behind the creation of the toll-free 1-800 number[22]and numerous mail order based loyalty marketing programs including the Columbia Record Club, the magazine subscription card, and the American Express Customer Rewards program.[24]

Modern consumer rewards programs

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Frequent flyers

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On May 1, 1981American Airlineslaunched theAAdvantagefrequent flyer program,[25]which accumulated “reward miles” that a customer could later redeem for free travel. Within a few years, many othertravel industrycompanies launched similar programs. The AAdvantage program now has over 100 million members.[26]

Card linked offers

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In 1996, Ahold Inc launched a frequent-shopper rewards program in 4 of its US based grocery chains, Finast Friendly Markets, Maple Heights, Ohio. Stop & Shop Cos, and Bi-lo. This was based on Graduate work research performed by Michael Raines and professor Robert Heoke.[27]The early part of 2010 saw the rise of Card Linked Offers (CLOs) as a new loyalty marketing technique for brands, retailers and financial institutions, stemming from a rise in popularity of bothmobile paymentandcoupons.CLOs connect offers or discounts directly to a consumer'scredit cardordebit card,which can then be redeemed at the point of sale. CLOs have been implemented byAmerican Express[28]andGroupon[29]and CLO technology has been developed by companies such as Strands,Meniga,[30]Smart Engine,[31]Cartera Commerce,[32]Womply,[33]Cardlytics, Linkable Networks,Birdback,Clovr Media,[34]and Offermatic.[35] In order to receive and use CLOs, consumers must willingly opt into a CLO program and provide their credit/debit card information.[36] When consumers see relevant CLO-enabled advertisements and product offers while browsing online, using a mobile device, watching TV, reading a newspaper or magazine or listening to the radio they can click, text or scan aQR codeto link the CLO-enabled ad directly to their credit/debit card. After consumers make a purchase at the designated retail location, the savings appeared are credited directly to their bank, credit card orPayPalaccount. As such, CLOs eliminate point-of-sale integration, mail-in rebates and paper coupons. Offers are typically based upon consumer preferences and previous purchase history.[34]

Loyalty apps

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In recent years the big players have introduced loyalty apps in replace ofloyalty cardsas part of theirloyalty programs.Theseappsare downloaded onto a customer's phone.

Loyalty marketing impact

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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.[37]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 orcar rentalprogram. In addition, research from Chris X. Moloney shows that nearly half of all credit card users in the US utilize a points-basedrewards program.[38]

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'sAAdvantageprogram and Starwood Hotels' Preferred Guest program have received industry awards, called "Freddie Awards" by Inside Flyer Magazine and its publisherRandy Petersenfor providing perks that customers value highly. These perks have become as important to many travelers as their reward miles according to research.[citation needed]

In his book,Loyalty Rules!,Fred Reichhelddetails 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 andadvocacyvia research and marketing.

Recent research studies also increasingly question the effectiveness of loyalty programs from the company's (rather than the customer's) perspective, arguing that rigorous business measurement of loyalty program KPIs is mostly absent or rudimentary (sometimes intentionally, sometimes due to lack of knowledge or inaccessible data).[39]

Customer service and retention statistics

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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.[40]

  • 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 incustomer retentionis significant enough to raise a company's value by 30%.

Customer loyalty statistics

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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

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Main article:Loyalty business model

Theloyalty business modelrelies 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 uponword-of-mouthandadvertisingto 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.[41]

The rapid expansion offrequent-flyer programsis 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.[42]

The most recent loyalty marketing programs rely onviral marketingtechniques to spread word of incentive and inducement programs through word of mouth.

Unpredictability of consumer biases

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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 loyaltyis 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.[43]

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.[43]

Methods of cultivating customer loyalty

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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.[44]

Consistent quality

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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.[45]

Transparency and communication

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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.[45]

Offer benefits and rewards to existing customers

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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.

See also

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References

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  1. ^Newsdesk, MyCustomer (2007-07-30)."There's no such thing as loyalty".MyCustomer.Retrieved2021-11-10.
  2. ^Reichheld, Frederick F. (2001).Loyalty rules!: how today's leaders build lasting relationships.Boston: Harvard Business School Press.ISBN1-57851-205-0.OCLC46402012.
  3. ^abShelper, Philip (2020-04-20)."The True History Of Loyalty Programs".Loyalty & Reward Co.Retrieved2021-11-10.
  4. ^Lonto, Jeff R. (2004a)."THE TRADING STAMP STORY (or When Trading Stamps Stuck) Part 1".STUDIO Z•7 PUBLISHING. Archived fromthe originalon 2011-01-02.
  5. ^Lonto, Jeff R. (2004b)."THE TRADING STAMP STORY (or When Trading Stamps Stuck) Part 2".STUDIO Z•7 PUBLISHING. Archived fromthe originalon 2011-07-16.
  6. ^"Kellogg's Offers First Cereal Premium Prize".Timelines.com.Retrieved2010-12-27.
  7. ^Widner, James F. (1998)."Captain Midnight — History".Old Time Radio.
  8. ^Fred Reichheld(1996)The Loyalty Effect,Harvard Business School Press, Boston, 1996.
  9. ^ab"The History of Cartophily".Archived fromthe originalon 23 May 2013.Retrieved22 November2016.
  10. ^"Cigarette Cards and Cartophily".Retrieved22 November2016.
  11. ^"Cigarette Card Guide (Collectibles) History and Grading".Retrieved22 November2016.
  12. ^"Early Trade Cards".Retrieved22 November2016.
  13. ^"Caramel cards.com: E107 Breisch-Williams".Retrieved22 November2016.
  14. ^1912 C46 Imperial Tobacco
  15. ^"Cabanas".Retrieved22 November2016.
  16. ^"Tobacco Baseball Cards".Retrieved22 November2016.
  17. ^"The History of Goudey Gum Company".Archived fromthe originalon 15 July 2011.Retrieved22 November2016.
  18. ^"CJCA - Cracker Jack Collectors Association - History & Lore".Retrieved22 November2016.
  19. ^"FRITO-LAY WINS CRACKER JACK".Chicago Tribune.9 October 1997.Retrieved2021-11-10.
  20. ^Frito-Lay Company to Acquire Cracker Jack
  21. ^Cheetos Sorpresa trae para ti una congelada y divertida sorpresa: Le Era de Hielo 3Archived2011-07-22 at theWayback Machine(in Spanish)
  22. ^abcdBrandweek 50,no.36.D1-D4 "The Next Generation of DIRECT MARKETING." Academic Search Complete, EBSCOhost, 2009,p.6.
  23. ^Root, Damon. "Marketplace of Ideas." Academic Search Complete, EBSCOhost, 2009, p.1.
  24. ^"Marketing Legend Lester Wunderman Live on 'The Alan Levy Show'".Retrieved22 November2016.
  25. ^Philip Kotler. According to Kotler: The World's Foremost Authority on Marketing Answers Your Questions. AMACOM Div American Mgmt Assn. 2005.ISBN0-8144-7295-8
  26. ^"AAdvantage − Travel information − American Airlines".www.aa.com.
  27. ^"Bi-Lo Launches New Bonus Card Program".24 March 1997.
  28. ^Kopecki, Dawn[1]“AmEx Facebook Page Lets Users Get Customized Discounts, Offers”, “Bloomberg”, July 19, 2011. Retrieved on July 29, 2011
  29. ^Neff, Jack,[2]“In a First, Unilever, Supervalu Pair for Groupon Deal,” “Advertising Age”, July 29, 2011. Retrieved on July 29, 2011
  30. ^Schicktanz, Julie,[3]"Meniga Launches Card-Linked Offers Solution", "Finovate", February 10, 2015.
  31. ^Future Banking[4]"Get smart: reviving loyalty in retail banking", "Future Banking - 21st-century strategies and solutions for Europe", Winter 2014
  32. ^Kutz, Erin[5]"Cartera Commerce Eyes Local Merchants to Drive Card-Linked Loyalty Program Business", "Xconomy", August 23, 2011
  33. ^Geron, Tomio[6]"Womply Adds Loyalty Rewards Via Credit Cards", "Forbes.com", December 7, 2011
  34. ^abWauters, Robin[7]“Bain Capital Ventures Believes In ‘Loyalty 2.0′, Invests $8.3 Million In Clovr Media”, “TechCrunch”, March 10, 2011. Retrieved on July 12, 2011
  35. ^McDermid, Riley[8]“Group-buying startup Offermatic pulls in $4.5M”, “VentureBeat”, March 9, 2011. Retrieved on July 12, 2011
  36. ^Walsh, Mark.[9]“Startup Clovr Touts Card-Linked Offers", MediaPost News, October 19, 2010. Retrieved on July 12, 2011
  37. ^Taylor, Wayne; Hollenbeck, Brett (2021)."Leveraging Loyalty Programs Using Competitor Based Targeting".Quantitative Marketing and Economics.19(3–4): 417–455.doi:10.1007/s11129-021-09237-y.S2CID108298338.SSRN3353432.
  38. ^Chris X. Moloney (2006) "Winning Your Customer's Loyalty: The Best Tools, Techniques and Practices" AMA Workshop Event(s). Misc. materials distributed related to event(s). San Diego, 2006.
  39. ^Meili, Alexander. (2022) "Loyalty Program Assessment: KPI-Based Evaluation of Customer Loyalty Programs",https://doi.org/10.5281/zenodo.6521984HWZ Working Paper Series,Zurich, 2022.
  40. ^Hollenbeck, Brett; Taylor, Wayne (Oct 8, 2021)."How to Make Your Loyalty Program Pay Off".Harvard Business Review.
  41. ^Carrol, P. and Reichheld, F. (1992) "The fallacy of customer retention",Journal of Retail Banking,vol 13, no 4, 1992.
  42. ^Scott Robinette, Vicki Lenz, Claire Brand.Emotion Marketing: The Hallmark Way of Winning Customers for Life.McGraw-Hill Professional, 2000.ISBN0-07-136414-5
  43. ^abTucker, W. T. (August 1964)."The Development of Brand Loyalty".Journal of Marketing Research.1(3): 32–35.doi:10.2307/3150053.JSTOR3150053.
  44. ^Belleghem, Steven Van (2014-10-08)."Five reasons customer loyalty is decreasing - and what you can do about it".MyCustomer.Retrieved2021-11-17.
  45. ^ab"How to Generate Brand Loyalty (And Reward Loyal Customers)".Orientation Marketing.Retrieved2021-11-17.
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