I don’t know how to handle this Marketing question and need guidance.
Two 125 word discussion responses
One: A recent trend in marketing has revolved around the creation of loyalty programs, sometimes also referred to as frequency marketing. When a firm attempts to implement a customer these programs there are several key factors which need to be considered. Of these, there are three key areas which need to be clearly understood and considered, cost-efficiency, differentiation and data from these programs (Winer & Dhar, 2011).
Cost efficiency is a paramount issue for any firm due to the long-term impacts of reducing sales which can indicate weakness in the business model. As a recent Forbes.com article details, loyalty programs can be very helpful from a revenue perspective but can also create excessively high break-even points for some companies. Furthermore, a Boston Consulting Group study estimated that a loyalty program could costs 3% of revenues breaks even at a 10% incremental share and generates 100% returns at a 20% incremental share (Morphy, 2014). This shows the importance of an effective cost control measure when creating an effective loyalty program.
Differentiation is another key aspect which must be considered in a successful loyalty program’s inception. A good example of this would be Starbucks loyalty which aims to reward members in a tiered approach based on purchases with more than just free cups of coffee. By adding more redemption categories, Starbucks has been able to expand its loyalty program benefits from just the most frequent visitors to include somewhat frequent visitors as well to reward more consumers with more variations of what they would want (Garcia, 2019).
In addition to this differentiation, Starbucks’ reward program utilizes a mobile application to manage their interactions and data points. Through this app, Starbucks can send push notifications to users about weekly specials which drive sales, but the app also has a more important benefit which is its ability to track customer activity. By pushing customers to use the app for these loyalty programs, Starbucks can then gather information on habits such as drink orders, customer lifetime value, frequently visited locations, seasonal favorites and much more (Peacock, 2018). These data points can prove invaluable when new products are being launched or if a firm is looking to understand their target markets to allocate advertising/promotional budgets. Essentially, loyalty programs are most effective when the program supports the brands value proposition, it adds value to the product or service and creates lifetime customer value.
Garcia, T. (2019, March 27). Starbucks revamps its rewards program to turn occasional customers into loyal ones. Retrieved from MarketWatch: https://www.marketwatch.com/story/starbucks-revamp…
Morphy, E. (2014, June 30). The Hidden Cost Of Rewards Programs And How Walmart May Beat The System. Retrieved from Forbes.com: https://www.forbes.com/sites/erikamorphy/2014/06/3…
Peacock, L. (2018, September 4). 10 Examples of Innovative Customer Loyalty Programs. Retrieved from Shopify: https://www.shopify.com/blog/loyalty-program
Winer, R. S., & Dhar, R. (2011). Marketing Management 4th Edition. Upper Saddle River: Pearson Education, Inc.
Two: Nowadays, loyalty/reward programs have become a must have to all companies looking for creating an environment where customers are loyal to the service and/or products they provide. But to ensure businesses capture value and sustain a long-term profit, they must understand the economic advantages of customer loyalty. According to Winer & Dhar (2011) loyal customers can generate higher profit margins while keeping low operational cost (pg. 429).
It seems like that the key to create loyal customers is to ensure they are satisfied with the products or services provided to them. Completely satisfied customers are produced when companies go beyond customer expectation in the relationship (Winer & Dhar, 2011, pg. 429). For example, the automobile industry displays a solid ‘customer loyalty’ mindset. Like a few in the industry, BMW have customers willing to wait for their products when demand is overweighing production; the reason for that is because BMW focus on their customers. The level of detail put into their products, plus the loyalty program available to qualified customers allow BMW to exceed expectation.
The loyalty programs have many aspects that should be considered before developing a rewards program. Among others, making the reward too high in benefits can jeopardize the program itself and eventually make it unsustainable. Second, making the program not appealing enough will make customers may not buy into it. And lastly, program’s communication should be on point or it may not retain customers as intended. Keep in mind that the most important thing about a loyalty/reward program is to have customers participating in it. Like in the BMW’s example, loyalty programs can be highly advantageous for businesses if they are strategically created. In general, loyalty programs should be consistent with the brand’s value proposition. In addition, the program should add value to the product or service offering, at the same time the program should be cost effective and realistic, (Winer & Dhar, 2011, pg. 429).
As a member of a loyalty program, I always try to take the most of it. For instance, my credit card’s rewards program is very appealing, to the extent that I try to pay as many expenses as I can by credit card to maximize the benefits. I am also member of an airline’s rewards program, and more than once I have rearranged my travel to prioritize flights with them.
In summary, by implementing a loyalty rewards program, a strong message is sent to current and future customers that the focus is not only on making money but also in a relationship with customers that is mutually beneficial. This act of goodwill will improve the overall outlook of customers, which will ultimately have a positive impact on the business (Olenski S. 2014, December 22).
Winer, R., Dhar, R. Marketing Management. [Bookshelf]. Retrieved from https://full-bookshelf.vitalsource.com/#/books/978…
Olenski S. (2014, December 22). 8 Reasons Why Loyalty Programs Are Imperative For Marketers.Retrieved from: https://marketingland.com/8-reasons-loyalty-progra…