What Is Loyalty Program?

Loyalty programs have been given new recognition in recent years for several reasons. First, because customer loyalty programs have a variety of benefits for companies, but also because they have become an expected part of the consumer experience. However, in today’s market, simply having a traditional loyalty program is not enough. In fact, a 2015 survey found that 42% of Americans will stop shopping with a brand that they are loyal to after too bad experiences. What is a loyalty program? Loyalty programs are structured marketing strategies designed by merchants to encourage customers to continue to shop at or use the services of businesses associated with each program. These programs exist covering most types of commerce, each one having varying features and rewards-schemes. - From Wikipedia. Loyalty programs widely cover tons of industries, such as banking, retailing, entertainment, hospitality and travel more specifically. It has different types of encouraging loyalty by giving incentives via cards or membership etc. Rewards card, points card or credit card and so on and so forth can be designed into incorporating with loyalty programs. And, this is called 'Loyalty Business Model'. Loyalty programs provide two key functions: They reward customers for brand loyalty, and they provide the issuing company with a wealth of consumer information. While companies can evaluate anonymous purchases, the use of a loyalty program offer additional information about the type of products that may be purchased together, and whether certain mechanisms are more effective than others. As with the emerging of data science, there is and will be plenty of room to improve on personalized rewards and exceptional services. Furthermore, loyalty programs can evolve as a centralized virtual currency, one with unidirectioal cash flow, since reward points can be exchanged into a purchase or service but not into cash, and it also requires certain periods of time to accumulate the points before redemption.  Why loyalty programs are important? Except from the benefits mentioned above, there is still affluent rationality behind the loyalty business model to make it crucial for business's success. On the one hand, from the merchants' financial perspective: 1. Increase revenue: 

Loyalty programs overall increase the revenue by 5~10%, and members spend 5~20% more than non-members on average. Loyalty members buy 5~20% more frequently too.

2. Save money:

As acquiring new clients are normally 25% more expensive than retaining current customers, the well-designed loyalty program can implement at a proper paces with cost-effective mechanisms.

3. Improve cash flow: Just as mentioned above, the rewards acquisition and redemption exist some time difference, and the partnership between loyalty programs offers and merchants, overall build up a solid business model where supports the business to improve cash flow and take advantage of. On the other hand, from the perspective of customers relationship management: 1. Attract new net acquisition of clients: A good loyalty or reward program normally offer "welcome" bonus with a large amount of points or rewards for new clients to signup. There is chance that when customer is satisfied with a new program, he or she would broadcast it around and generate more free referrals. 2. Enhance customers' engagement and experience: Loyalty programs give companies direct way to communicate to clients, therefore forming a better communication system between merchants and customers. More importantly, as digital marketing and data science available, there will be more personalized offers to customers to improve their experience, thus largely enhancing the engagement and response of customers. 3. Strengthen customers' retention: As loyalty programs build up a transparent model where companies can monitor and visualize customers' satisfactions over the time, at individual level. Merchants simultaneously take actions to prevent customers to become inactive, churn or dormant. As a results, 5% of increase in retention can lead to 25~100% increase in profit for the company. 4. Optimize customers portfolio to maximize the profitability: With more data generated and more behavior observed through out the journey with customers, companies are always trying to keep up good work with good customers, and minimize the payout to the unprofitable ones. And the optimized portfolio of customers are the loyal members whom the companies prefer to reward and go along with the journey. First created & edited: AI Analytics Data source: en.wikipedia.org/wiki/Loyalty_program www.investopedia.com/terms/l/loyalty-program.asp www.annexcloud.com/blog/10-pros-and-cons-of-loyalty-programs/ www.annexcloud.com/blog/10-benefits-implementing-customer-loyalty-program/