Developing an Effective Customer Loyalty Program

Barry Berman

oyalty programs are offered by both retailers and manufacturers to stimulate continued patronage among consumers through discounts, cash, free goods, or special services (such as free magazines on specialized topics of interest to loyalty program members). While retail cooperatives pioneered loyalty programs through giving members allowances based on their annual purchases, the more modern use of loyalty programs began with Raleigh cigarette coupons and with stamp-based programs such as the S&H Green Stamp Company (which offered consumers points based on purchases; these points were redeemable for a broad selection of merchandise). The most current form of customer loyalty
Occasional customers and “cherry pickers” (who only buy a firm’s heavily discounted goods and services) receive the same deals as a firm’s best customers. Since Type 1 loyalty program sponsors do not maintain a customer database beyond a member’s name and address, they cannot correlate demographic or lifestyle information to purchase behavior or offer special deals to their most profitable consumers. Type 1 programs are often conducted by small firms that do not have the managerial commitment or resources to conduct a Type 2, Type 3, or Type 4 activity or as a defensive measure to compete against a more complex loyalty program. All of the other forms of loyalty programs (Types 2, 3, and 4) attempt