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Driving Customer Loyalty

Article By Ari Buchwald April, 2001

Loyalty is the brass ring that all companies want in their customer base. Loyalty will help a company ride out bad times, stiff competition or even poor products. Loyalty is earned and developed over time. As relationships grow between customers and a business or brand, a series of expectations start to manifest.

If the bond does not develop or starts to erode, companies may resort to various marketing efforts to shore up the customer or try to win back a churning customer base. One method often used is the good old loyalty program.

Program Goals

Prior to launching a loyalty program, clear goals should be defined for the project. Throughout development and implementation, keep foremost that the program should focus on the customer, not on products or sales.

Additional benefits of a loyalty program include:

  1. Collect attitudinal and behavioral data
  2. Profile the customer
  3. Develop cohesive traffic generation programs
  4. Identify and reward the high value customer
  5. Maximize the customer’s lifetime value

Best Practices

Following are considerations in regards to developing a frequency or loyalty reward program. Keep in mind that a good program focuses on the customer and enhances positive behaviors.

  • Ask the customer what they want or like – poll the customer as to service, variety, convenience, price, frequency of contact, permission to use various channels such as email, etc.
  • The program should not be the centerpiece of a marketing plan, but closely aligned with the overall marketing objectives.
  • Good programs award for interaction, not just for purchases.
  • Good programs develop soft rewards like using accumulated points for special event attendance.
  • Loyalty programs need to be relevant and by the nature of implying exclusivity, are not for everybody.
  • Reward the behavior that you are seeking. AOL and Yahoo reward the completion of surveys as well as purchases. Other programs may recognize and reward for volume of purchases or longevity of the account.
  • Good programs are segment-specific and focus on development of one area or department. • Reward different experiences in (different) relevant ways.
  • Remember the customer – Show that you know the customer and refer to their past interactions.
  • Establish an interval of relevant communications such as email, newsletters, offers. The program should keep a relevant and personal touch.

Membership Identification

A system must be put into place to identify and track individual members. Typically, this takes the form of a swipe card or a membership number of some sort. This number may be a phone number or another identifier. Compliance can be maximized if the identifier is easy to remember and the card is easy to keep track of.

Enrollment Options

Considerations for the program include membership duration. Will the member enroll once or annually?

Will there be a one time or annual fee? Will there be an enrollment kit that contains an immediate benefit such as discount on that day’s purchase?

  • Offer customers an initial incentive (free merchandise, discounts or a % discount) for joining club.
  • Develop customized enrollment kits and newsletters for the program and distribute with membership cards at the time of enrollment.


Rewards are given to the customer for performing a requested or expected behavior. Some rewards are soft rewards, like shorter lines at the airline gate or being identified and remembered at the time of a retail purchase or when logging onto a website. Others are hard rewards like cash back, percent off or free product.

A general rule of thumb is to base the cost of the incentive on a percentage of the overall purchase, purchasing goal within a category, brand or product line, or lifetime value of the customer.

In consideration of relevancy, there should be several tiers to the program which will allow the sense of exclusivity without excluding the general customer base.

  • Offer top attainable top tier benefits based on longevity, cross purchasing or volume purchasing.
  • Reward the customer immediately – show the benefit of each transaction • Offer short term and long term perks.
  • Maintain achievable reward levels.
  • Give additional bonuses at certain times, i.e. birthday month, holiday time.
  • Offer private sales offers, or try it before you buy it offers.
  • Offer incentives to employees to aid in enrollments.
  • Conduct member only events.

Program Metrics

Rather than look for a one-to-one return on investment, track success of the program by measuring changes to the lifetime value of the customer.

  • Track customer transactions and interactions throughout all sales channels.
  • Append additional data to better identify and understand the customer.
  • Identify most profitable segments and communicate relevant offers.

Partner Options

Many companies are now affiliating with major points programs rather than starting their own program. There is an advantage in being able to redeem in many different ways, but avoid multiple agreements that reduce the feeling of exclusivity, i.e. AOL has partnered with virtually everyone to the level of becoming ubiquitous or confusing.

Additional Considerations

  • Reward the customer for utilization of multiple channels, i.e. retail and catalog or internet.
  • Monitor internet clickstream data for additional information on behaviors.

Remember that a loyalty program is an accent to a good marketing program, not a replacement for one! The program must avoid creating more loyalty to the points or the program than to the brand. And always develop an exit strategy with clear definitions of program rules and the ability to change or terminate benefits.

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