How do Businesses Benefit from Loyalty Programs? Businesses operating in mature markets have a unique dilemma- they have to constantly look for innovative ideas to stay close to customers and differentiate themselves from competitors. The proverbial sword of low margins and fixed costs hangs over their head. And there’s also the threat of the low-price players. When price cannot be a differentiator, companies have to look for other differentiators. One such advantage can be offered through customer loyalty programs. They don’t just discourage existing customers from switching stores, but also give businesses an edge during a price war. When done properly, loyalty programs can generate up to 20% of a company’s profit. No wonder, US companies spend around $25 billion every year on loyalty programs.
How did Loyalty Programs Start? A lot of research conducted around the 1970s indicated that suppliers who formed a better relationship with customers tend to have ‘better customers. Further research also indicated that better customers bring better business. It slowly began as a marketing strategy for small and medium businesses that used their database to monitor and manage customer behavior.
Modern Day Loyalty Programs There are plenty of loyalty programs, but most of these can be slotted into two different categories; Standalone and Coalition.
Standalone The most common loyalty membership today is the standalone program where customers get rewarded for doing business with the company that offers the program. Points can be redeemed only within the range of products offered by the program owner.