Loyalty Management is a popular customer engagement practice used by Marketing Managers to serve multiple objectives of better customer experience, improving retention, increasing customer lifetime value and profitability. Loyalty Management is particularly useful in an industry where customer attrition is high, brand loyalty is low, barriers to exit the brand are low and the sector is competition intensive. Successful loyalty programs are typically found in the airline, credit cards and retail industries. Telecommunications is another sector where Loyalty Management is gaining prominence as an effective customer engagement tool because this industry is also characterized by challenges of customer attrition, heavy competition, price sensitivity and low profit margins.
A typical Loyalty program addresses two aspects:
- It rewards customers for past usage- the “Earn” aspect
- It incentivizes customers for future usage- the “Burn” aspect
Points, which are the underlying currency in any Loyalty program, stand for some monetary or non-monetary value and can be converted at any time by the customer. “Earn” allows the customer to accumulate points whenever he conducts a transaction thus encouraging him to transact more and be more engaged. “Burn” allows the customer to redeem the accumulated points on future transactions thus encouraging him to stay with the brand longer.
The key benefits of a Loyalty Program are to:
- Increase profitability by identifying, rewarding and hence retaining high value customers.
- Create a sustainable and differentiated competitive advantage
- Effectively influence desired customer behavior.
Some examples of successful Loyalty Programs are Frequent Flyer miles offered by various Airline companies as well as points for usage of credit cards.