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Tips on Using Loyalty Programs

Updated on December 18, 2015
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Kay has ten years of experience in data research, analyses and client relationship management. A voracious reader and continuous learner.

How do Loyalty programs work as effective marketing tools? What is in it for consumers? What are the different options in programs and what are the common misconceptions? What are you agreeing to divulge when you use your loyalty card?

Who hasn’t heard about the recent purchase of a $170 million painting by the Chinese businessman, Lui Yiqian’s on his American Express card to earn reward points?


Frequent Flyer miles

Source

Loyalty programs are issued from punch cards at coffee shops to the more sophisticated type of card offered by airlines and retailers. You can even earn movie points or get frequent flyer miles when you renew your mortgage. The programs cover a large price point and work in different ways.

According to 2015 Colloquy customer Loyalty Census, 74% of American people are enrolled in loyalty programs. Out of this each American household owns 29 loyalty program cards, in 2015. Out of these, they use and earn points on only 12 programs. According to Yahoo! Talking Loyalty survey of 2015, 90% of Canadians are enrolled in loyalty program. Each one has 4 loyalty cards. The consumer uses 2 of these cards. In Canada, earning bonus points on loyalty cards influences retail decisions made by consumers.

Canadian Loyalty Participation
Canadian Loyalty Participation | Source

What happens to earned reward points?

A lot of reward points go unclaimed. This is because shoppers do forget to redeem their points for rewards if the threshold for getting reward is high. Another reason is that the shopper might not purchase items for the sole purpose of earning points. These price-conscious people may not get to the rewards mark by the time that points expire.

Wouldn’t it be great if the reward program notified you when you were eligible for a free product? But most reward programs do not. Currently, most loyalty programs require customers to keep track of their rewards and for them to contact a separate rewards department for redemption of accumulated points. If these two were synced then it would take care of timing. This is done by the Real Time Rewards credit card of the US Bank. When a customer is eligible for a free item, he is sent a text asking him if he would like to redeem his points for the purchase he just made. If the customer agrees, then his/her credit card shows a credit for the purchase and the points are deducted from his/her account.

Grocery retailers offer loyalty cards that can be redeemed when the customer earns a set number of points. In Canada, customer can earn $20 of free groceries when they redeem 20,000 points at the Great Canadian Superstore.

Introduction of Loyalty Programs

Loyalty programs date back to 1981, when American Airlines introduced the first loyalty program called Frequent Flyer program. Soon retailers started issuing loyalty aggregator cards for their customers. These cards could be used at different retailers and customers redeemed their accumulated points online. Popular examples of loyalty aggregators include the Air Miles and Aeroplan programs in Canada.

This transitioned into specific store’s rewards cards because stores wanted to get more in-store business. Today, loyalty programs are not limited to cards but extend to apps and online forms. Customers are not just offered physical rewards but a host of diverse actions. Modern loyalty programs take customers on a journey from purchase to review and reward them according to where they are on that journey. Their aim is to make clients brand advocates.

Loyalty Programs are Effective Marketing Tools

They are terrific marketing tools. Collected customer data can be used to formulate targeted marketing strategies based on client’s preferences. Companies offer different ways to collect points. The primary is when customer gets points for purchase. As you buy more you will accumulate more points. Customer data such as product, time, location, and frequency of items bought are stored. It is one type of big data.

A reward card owner has to accumulate set number of points to earn a reward. Airlines and credit card issuers have successfully partnered with other merchants to attract more consumers to their loyalty programs.

Who would not want to collect points to fly to exotic locales or get a Starbucks gift card? The alliances offer a wider selection of rewards for customers. If you collect enough points on your Hudson Bay Company’s reward card, then you get a gas gift card.

Retailers advertise products that would earn points online and through their flyers. In Canada, shoppers are drawn to shop on days when more reward points are offered.

Different Types of Reward Programs

Most retail loyalty programs have no enrollment fee. Some loyalty programs have an annual fee such as credit cards that offer air miles. Recently in the US, Amazon introduced its reward program called Prime for a set annual fee. Subscribers to this program can download music, music, and eBooks and get free online shipping. It hopes to overcome the hesitation clients have over paying extra for shipping charges.

Loyalty programs would benefit from being more transparent in reporting of rewards; more cash back offers; and creating a direct link between earning points and getting credit.

Some programs reward their members if they earn extra revenue. A good example of this is in Canada where Quebec and Saskatchewan have decided to reward good drivers with clean driving records. They will get discount on their driver’s insurance. In the case of Quebec it will result in driver with good driving records saving $65 on their yearly registration.

A unique reward system has been set-up by the outdoor outfitter, Patagonia. It started the Common Threads Initiative. Under this initiative Patagonia provides an eBay platform and listing on its corporate site for all of its resale clothes.

Take Aways

At the end of the day, you as a consumer need to know that not all rewards are the same. It is up to you to determine which one suits your needs and subscribe only to those. Otherwise you will be like the average North American who has more cards then he knows what to do with them.

A point to keep in mind is what are the Terms and Conditions under which I can apply for the loyalty program. Read them carefully before you enroll. The agreement outlines the use of your data, its storage and resale. Once you are comfortable with these terms, you can sign the agreement. Information collected through rewards program is used for marketing purposes. Depending on the terms in the loyalty program’s agreement, the firm might sell all of the collected data to a third party. Only data that can harm the individual, whose privacy is breached such as a credit card number, cannot be sold.

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© 2015 Kay Dholoo

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