Loyalty Program

By: EconomyWatch   Date: 30 June 2010

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Components of a Loyalty Program - Benefit Mix Strategy

Value:

Deliver perceived value to the customers, including:

‘Soft’ Value – intangible like exclusivity
‘Hard’ Value – discounts, rebates

Service:

Provide a premier level of service compared to a regular customer

‘Badge’ the higher service level (complements exclusivity value)

Rewards:

Recognize and reward customers

The more valuable a customer is, the more they should be rewarded

Events:

Provide invitations to exclusive events

Provide VIP invitations to regular events

Tiered Loyalty Programs

Starting with three broad tiers of loyalty program is the most common approach.

Breakdown of typical number of tiers in loyalty programs, by industry:

Airlines: 3-4 tiers
Hotels: 2-3 tiers
Retail: 2-3 tiers
Telecom: 3 tiers

Source: Qais Consulting.

Reward Attainability

Critical to the success of a point-based rewards program is that rewards be attainable - not just by the top spenders, but by all eligible programme participants

From the spend data we can predict the value of different members points balance over time

The table below shows the value (S$) of accumulated by customers at different levels of spend after different lengths of time.

On average, people indicate that 7 months is an appropriate amount of time to have participated in a loyalty programme to earn a reward

Programme Funding Rates

It is recommended that the Retailer funds rewards in the loyalty program at levels comparable with other Retail Loyalty programmes

Customers have certain expectations of rebate rates, based on their experience with similar programs.

Expected rebate levels are as follows:

Airlines: 6 - 8 per cent
Petrol: 0.5 - 2 per cent
Retail: 2 - 7 per cent
Telecom: 1 - 4 per cent
Financial: 1 - 5 per cent

 

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