Loyalty marketing is an approach to marketing, based on strategic management, in which a
company focuses on growing and retaining existing customers through incentives. Branding, product
marketing and loyalty marketing all form part of the customer 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.
The discipline of customer loyalty marketing 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 as Fred
Reichheld, have claimed a strong link between customer loyalty marketing and customer referral.
In recent years, a new marketing discipline called "customer advocacy marketing" has been
combined with or replaced "customer loyalty marketing." To the general public, many airline
miles programs, hotel frequent guest programs and credit card incentive programs are the
most visible customer loyalty marketing programs.
History Retail merchandising
Premiums Premiums are items that a retail customer
can receive by redeeming proofs of purchase from a specific product or store. This was
one of the first loyalty marketing programs. Early premium programs
Beginning 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 practice caught on and was
used by many merchants throughout the 19th century. Sweet Home laundry soap, a product
of the B. A. Babbit Company, came with certificates that could be collected and redeemed for color
lithographs. Beginning in 1872, the Grand Union Tea Company gave tickets to customers
that could be exchanged for merchandise in the company catalog of Grand Union stores.
Trading stamps The first trading stamps were introduced in
1891, the Blue Stamp Trading System, where stamps affixed to booklets could be redeemed
for store products. The Sperry and Hutchinson Company, started in 1896 in Jackson, Michigan,
was the first third-party provider of trading stamps for various companies, including dry
goods dealers, gas stations and later supermarkets. 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. Marketing through children
Marketers of retail products used programs targeted at children to sell to their parents
through the use of premiums. Kellogg's Corn Flakes had the first cereal premium with The
Funny Jungleland Moving Pictures Book. The book was originally available as a prize that
was given to the customer in the store with the purchase of two packages of the cereal.
But in 1909, Kelloggs changed the book give-away to a premium mail-in offer for the cost of
a dime. Over 2.5 million copies of the book were distributed in different editions over
a period of 23 years. At the beginning of the Second World War,
radio was a big player in the promotion and distribution of premiums, usually toys that
were closely related to the radio program. There were many radio shows that offered premiums
to their listeners, but Captain Midnight was one of the best known. The early sponsor of
Captain Midnight was Skelly Oil, and parents could get forms to mail-in for radio premiums
at the gas stations. Later, Ovaltine became the sponsor of Captain Midnight, and it continued
the premiums through advertising on the labels and foil tops of Ovaltine that could be collected
to exchange for Captain Midnight premiums and offering membership to the "Secret Squadron".
Boxtops In 1929, Betty Crocker issued coupons that
could be used to redeem for premiums like 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 earliest loyalty programs
ended a 77 year tradition. Prizes
Prizes are promotional items—small toys, games, trading cards, collectables, and other
small items of nominal value—found in packages of brand-name retail products that are included
in the price of the product with the intent to boost sales.
Tobacco inserts Some of the earliest prizes were cigarette
cards — trade cards advertising the product 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
company W.D. & H.O. Wills in 1888, were the first tobacco companies to print advertisements
and, a couple 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. By 1900,
there were thousands of tobacco card sets manufactured by 300 different companies. 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. 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 collecting tea cards in the UK and bubble gum cards in
the US. Trade cards to trading cards
The first baseball cards were 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.
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,
American Caramel Company, the Imperial Tobacco Company of Canada, and Cabañas, a Cuban cigar
manufacturer. In fact it is a baseball set, known as the T-106 tobacco card set, distributed
by the American Tobacco Company in 1909 that is considered by collectors to be the most
popular set of cigarette cards. In 1933, Goudey Gum Company of Boston issued baseball cards
with players biographies on the backs and was the first to put baseball cards in bubble
gum. Bowman Gum of Philadelphia issued its first baseball cards in 1948 and became the
biggest issuer of baseball cards from 1948 to 1952.
Modern packaged foods The most famous use of prizes in the United
States is Cracker Jack brand popcorn confection. Prizes have been inserted into every package
of Cracker Jack continuously since 1912. W.K. Kellogg was the first to introduce prizes
in boxes of cereal. The marketing strategy that he established has produced thousands
of different cereal box prizes that have been distributed by the tens of billions. Frito-Lay
is 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", Frito-Lay
also regularly includes tazos and tattoos in packages of Lay's chips worldwide. In parts
of Latin America, Frito-Lay has even introduced a brand called Cheetos Sorpresa, which includes
a licensed prize in every 29–gram bag. Direct marketing pioneers
Ward: the father of mail order By creating a direct marketing industry through
his mail order catalogue, Aaron Montgomery Ward would unknowingly enable the creation
of a powerful global network that would include everything from mailing, to mail order, to
telemarketing and lastly to social medias. Together Ward and his [long time] competitor
Sears changed the direction of the American marketplace by introducing the concept of
individuality with the term consumption, allowing therefore the generations of today to take
full control of their consumption behaviours and all of this in complete privacy. Today,
the mail order catalogue industry Montgomery funded is worth approximately 100 billions
of dollars, 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. Wunderman: direct marketing genius
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. The term "direct marketing" was coined long after
Montgomery Ward's time. In 1967 Lester Wunderman identified, 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 and numerous mail order based loyalty marketing
programs including the Columbia Record Club, the magazine subscription card, and the American
Express Customer Rewards program. Modern consumer rewards programs
Frequent flyers On May 1, 1981 American Airlines launched
the first full-scale loyalty marketing program of the modern era with the AAdvantage frequent
flyer program. This revolutionary program was the first to reward "frequent fliers"
with reward miles that could be accumulated and later redeemed for free travel. Many airlines
and travel providers saw the incredible value in providing customers with an incentive to
use a company exclusively and be rewarded for their loyalty. Within a few years, dozens
of travel industry companies launched similar programs. The AAdvantage program now boasts
over 50 million active members. Card linked offers
The early part of 2010 saw the rise of Card Linked Offers as a new loyalty marketing technique
for brands, retailers and financial institutions, stemming from a rise in popularity of both
mobile payment and coupons. CLOs connect offers or discounts directly to a consumer’s credit
card or debit card, which can then be redeemed at the point of sale. CLOs have been implemented
by American Express and Groupon and CLO technology has been developed by companies such as Cartera
Commerce, Womply, Cardlytics, Linkable Networks , Birdback, Clovr Media, and Offermatic. In
order to receive and use CLOs, consumers must willingly opt into a CLO program and provide
their credit/debit card information. 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 a QR code
to 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 or PayPal account. 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. Prior to 2010, static CLOs existed for many years in the
form of bank issued loyalty offers, such as points or savings on travel purchases.
Loyalty marketing impact 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. 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 or car rental program. In addition, research from Chris X. Moloney shows that
nearly half of all credit card users in the US utilize a points-based rewards program.
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's AAdvantage program and Starwood Hotels' Preferred Guest
program have received industry awards, called "Freddie Awards" by Inside Flyer Magazine
and its publisher Randy Petersen for providing perks that customers value highly. These perks
have become as important to many travelers as their reward miles according to research.
In his book, Loyalty Rules!, Fred Reichheld details 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 that showed a magnetic value to a company to promote and measure customer
referrals and advocacy via research and marketing. Loyalty marketing and the loyalty business
model
The loyalty business model relies 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 upon
word-of-mouth and advertising to 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.
The rapid expansion of frequent-flyer programs is 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. The most recent loyalty marketing programs
rely on viral marketing techniques to spread word of incentive and inducement programs
through word of mouth. See also
Business model Customer loyalty programs
Incentive program Loyalty program
Relationship marketing Strategic management
Trust-based marketing References