MarketIntellibitsTM                        


July 31,   2005
Volume I   Issue 12


Loyalty Programs

To many, segmentation and loyalty programs are the same. Most familiar, of
course, are the airline programs where you earn status and rewards by
flying on a particular airline. Customers are segmented into gold or platinum
status, and their loyalty is rewarded.

But in truth, loyalty programs and segmentation are really quite different.

Let’s first examine some of the unique aspects of the airline programs:
•        When they reward the corporate business traveler, they’re rewarding a
buyer who is spending someone else’s money.
•        Airlines generate serious revenue by selling miles to hotels, car rental
companies, etc.
•        The rules are clearly spelled out, and you know exactly what you need
to do in order to achieve a particular status level.
•        There is considerable cost associated with the administration of these
programs.
•        They collect a lot of information about customers’ buying habits.

How do you feel about these issues?

Let’s examine them one by one.

Someone else’s money

I’ve talked to small business owners, and they unanimously do not want
their purchasing agents influenced by the opportunity to win points toward
TV’s, travel, or other merchandise.

The owners themselves generally did not want these rewards, either. They’
d rather have a good price and they’ll buy their own TV, thank you very
much.

Incentive programs for sales people are different, and can have merit, but be
careful of programs that become established and are easy to copy. You
might not be able to get out when you want to. Also, be careful of legal
issues.

Selling miles

Is this relevant in your business?

Coming from the paper business, at first glance it appears that this doesn’t
apply. Sell points to Avis or Hertz so that they can give them to travelers
who would redeem them for…. What? Copy paper? Maybe someone else
can see a way to make this work, but I don’t.  

Clear rules

Why are you doing this? Is it to reward behavior or to drive behavior? If you
want to drive behavior, obviously you must tell your customers what you
want them to do and what you will do for them in return.

Here, you must be careful. If a good customer comes close to reaching a
reward threshold, they may feel they deserve the reward anyway, be it
rebate, enhanced service, or whatever. You may find yourself with more
unhappy customers than loyal ones.

Again, be careful of the legal issues.

Administrative cost

Of course, the incentives themselves carry a cost, but the greatest cost may
be in administration. Even if you outsource it to a marketing firm, you need
to manage the marketing firm, and that can take easily take from one-half to
one full time person.

Information

Information about customers and their buying habits can be the greatest
value in loyalty programs – if you act on the information. This kind of
information can lead to real segmentation, targeted marketing, and
increased sales.

Are you able to act on the information? Do you have systems to collect and
manage the information? Do you have a plan for how you want to use it?

Conclusion

A loyalty program may or may not be right for you, and hopefully this article
has given you some insight into the issues you need to consider.

If you need further help with loyalty programs,  
MarketIntell can help. We
can help you think through the strategy, survey your customers to get their
reactions, and implement the appropriate program.

Email Jack Miller or call Jack Miller at 203 925 0326.


MarketIntellibits  is published semi-monthly  by MarketIntell,  a  Market
Intelligence consultancy founded by Jack Miller, a long time sales and
marketing executive in the paper industry.    

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