Loyalty Marketing

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.[1]

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.[2]


[edit] History

[edit] Retail merchandising

[edit] 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.

[edit] 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 Grand Union Tea Company gave tickets to customers that could be exchanged for merchandise in the company catalog of Grand Union stores.

[edit] 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.[4]

[edit] Marketing through children

Marketers of retail products used programs targeted at children to sell to their parents through the use of premiums. [6]

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”.[7]

[edit] 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.[8]

[edit] 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 (or available from the retailer at the time of purchase) that are included in the price of the product (at no extra cost) with the intent to boost sales.

[edit] Tobacco inserts

Some of the earliest prizes were [11]

[edit] Trade cards to trading cards

The first Bowman Gum of Philadelphia issued its first baseball cards in 1948 and became the biggest issuer of baseball cards from 1948 to 1952.

[edit] Modern packaged foods

The most famous use of prizes in the United States (and the word “prize” in this context) is [21]

[edit] Direct marketing pioneers

[edit] 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.[22]

[edit] 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.[24]

[edit] Modern consumer rewards programs

[edit] Frequent flyers

On May 1, 1981 [26]

[edit] Card linked offers

The early part of 2010 saw the rise of Card Linked Offers (CLOs) as a new loyalty marketing technique for brands, retailers and financial institutions, stemming from a rise in popularity of both [31] 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.

[edit] Consolidated loyalty programs

Recently there has been a move away from proprietary loyalty schemes to a more consolidated approach, where a single registered account can link a consumer to any number of participating merchants.[36] have offered consolidated loyalty marketing schemes in other continents.

[edit] 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.[37]

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 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, 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 (Loyalty World London 2006) that showed a magnetic value to a company to promote and measure customer referrals and advocacy via research and marketing.

[edit] 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.[38]

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.[39]

The most recent loyalty marketing programs rely on viral marketing techniques to spread word of incentive and inducement programs through word of mouth.

[edit] See also

[edit] References

  1. ^ Fred Reichheld (1996) Loyalty Rules!, Harvard Business School Press, Boston, 2001.
  2. ^ Lonto, Jeff R. (2004a). “THE TRADING STAMP STORY (or When Trading Stamps Stuck) Part 1”. STUDIO Z•7 PUBLISHING. http://www.studioz7.com/stamps1.shtml.
  3. ^ Lonto, Jeff R. (2004b). “THE TRADING STAMP STORY (or When Trading Stamps Stuck) Part 2”. STUDIO Z•7 PUBLISHING. http://www.studioz7.com/stamps2.shtml.
  4. ^ Phil Ament. “Corn Flakes History – Invention of Kellogg’s Corn Flakes”. Ideafinder.com. http://www.ideafinder.com/history/inventions/kelloggcf.htm. Retrieved 2010-12-27.
  5. ^ “Kellogg’s Offers First Cereal Premium Prize”. Timelines.com. http://timelines.com/1910/kelloggs-offers-first-cereal-premium-prize. Retrieved 2010-12-27.
  6. ^ Widner, James F. (1998). “Captain Midnight — History”. Old Time Radio. http://www.otr.com/cm_history.shtml.
  7. ^ Fred Reichheld (1996) The Loyalty Effect, Harvard Business School Press, Boston, 1996.
  8. ^ The History of Cartophily
  9. ^ A Social History Lesson Up In Smoke — Cartophily
  10. ^ Cigarette Card Guide (Collectibles) History and Grading
  11. ^ Early Trade Cards
  12. ^ Baseball Caramel Cards E107 Breisch-Williams
  13. ^ 1912 C46 Imperial Tobacco
  14. ^ 1909 Cabañas
  15. ^ Tobacco Baseball Cards
  16. ^ The History of Goudey Gum Company
  17. ^ Cracker Jack Collectors Association – History
  18. http://promomagazine.com/campaigns/marketing_good_old_days/. Retrieved 2012-11-02.
  19. ^ Frito-Lay Company to Acquire Cracker Jack
  20. ^ Cheetos Sorpresa trae para ti una congelada y divertida sorpresa: Le Era de Hielo 3(Spanish)
  21. ^ d Brandweek 50,no.36.D1-D4 “The Next Generation of DIRECT MARKETING.” Academic Search Complete, EBSCOhost, 2009,p.6.
  22. ^ b Root, Damon. “Marketplace of Ideas.” Academic Search Complete, EBSCOhost, 2009, p.1.
  23. ^ Marketing Legend Lester Wunderman Live on ‘The Alan Levy Show’
  24. ^ Philip Kotler. According to Kotler: The World’s Foremost Authority on Marketing Answers Your Questions. AMACOM Div American Mgmt Assn. 2005. ISBN 0-8144-7295-8
  25. ^ American Airlines AAdvantage | Frequent Flyer Points | Airline Mileage | AA.com
  26. ^ Kopecki, Dawn [1] “AmEx Facebook Page Lets Users Get Customized Discounts, Offers”, “Bloomberg”, July 19, 2011. Retrieved on July 29, 2011
  27. ^ Neff, Jack, [2] “In a First, Unilever, Supervalu Pair for Groupon Deal,” “Advertising Age”, July 29, 2011. Retrieved on July 29, 2011
  28. ^ Kutz, Erin [3] “Cartera Commerce Eyes Local Merchants to Drive Card-Linked Loyalty Program Business”, “Xconomy”, August 23, 2011
  29. ^ Geron, Tomio [4] “Womply Adds Loyalty Rewards Via Credit Cards”, “Forbes.com”, December, 7, 2011
  30. ^ [5] “Bain Capital Ventures Believes In ‘Loyalty 2.0′, Invests $8.3 Million In Clovr Media”, “TechCrunch”, March 10, 2011. Retrieved on July 12, 2011
  31. ^ McDermid, Riley [6] “Group-buying startup Offermatic pulls in $4.5M”, “VentureBeat”, March 9, 2011. Retrieved on July 12, 2011
  32. ^ Walsh, Mark.[7] “Startup Clovr Touts Card-Linked Offers”, MediaPost News, October 19, 2010. Retrieved on July 12, 2011
  33. ^ “The future of loyalty programs”. 2012-01-20. http://mazecard.com.au/xwiki/bin/view/Blog/The+future+of+loyalty+programs.
  34. ^ “Google’s Punchd acquisition to push mobile wallet uptake”. 2011-07-12. http://venturebeat.com/2011/07/12/googles-punchd-acquisition-to-push-mobile-wallet-uptake.
  35. ^ “Tips to making your loyalty program work”. 2011-05-13. http://ekoutanov.wordpress.com/2012/05/13/tips-to-making-your-loyalty-program-work/.
  36. ^ Chris X. Moloney (2006) “Winning Your Customer’s Loyalty: The Best Tools, Techniques and Practices” AMA Workshop Event(s). Misc. materials distributed related to event(s). San Diego, 2006.
  37. ^ Carrol, P. and Reichheld, F. (1992) “The fallacy of customer retention”, Journal of Retail Banking, vol 13, no 4, 1992.
  38. ^ Scott Robinette, Vicki Lenz, Claire Brand. Emotion Marketing: The Hallmark Way of Winning Customers for Life. McGraw-Hill Professional, 2000. ISBN 0-07-136414-5

This article uses material from the Wikipedia article Loyalty Marketing, which is released under the Creative Commons Attribution-Share-Alike License 3.0.

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