The History and Future of Loyalty Programs
Business Solutions Since their inception more than 100 years ago, loyalty programs have changed the way consumers interact with the companies from which they purchase products or services.
One of the earliest efforts to win the hearts, minds and wallets of customers was the S&H Green Stamp program, originating in 1896. To encourage loyalty, consumers received tiny stamps when they made purchases from participating merchants, glued them onto pages of booklets (known as “alternative currency”) and redeemed them for products when the accumulated stamps had attained a certain value. Just how popular was the program? S&H Green Stamps once issued three times as many stamps as the US Post Office, and by the 1960’s, S&H was the largest purchaser of consumer products in the world.
Another well-known early loyalty program was General Mills’ longstanding Betty Crocker Points Program in which customers collected points which were redeemable for kitchenware from a catalog. As the story goes, it all started with a teaspoon tucked into boxes of Wheaties in 1931. General Mills then put paper coupons into packages of Gold Medal Flour and other General Mills brands. Ultimately, point values were printed on the outside of boxes.
More than a coupon program
Clipping box tops and accumulating Betty Crocker points became a habit in many households. As reported on Minnesota Public Radio, Mark Bergen, chair of the marketing department at the University of Minnesota’s Carlson School of Management, says the Betty Crocker program was remarkable for two characteristics—its longevity and the depth of emotion it inspired among its devotees. It became more than a coupon redemption program, Bergen says, by working its way into the fabric of family life. Betty Crocker officially retired her catalog in 2006.
Increased competition following the 1978 Airline Deregulation Act encouraged airline marketers to create ways to reward repeat customers and drive brand loyalty. The first idea at American Airlines, a special “loyalty fare”, was expanded to offer free first class tickets, first class upgrades for companions, or discounted coach tickets. Within the week, United Airlines launched its Mileage Plus program; other airlines followed in the ensuing months and years.
"Loyalty programs are no longer solely focused on points. Loyalty is a destination created through data-centric marketing communications that lead to sustainable and measureable change in customer behavior."
Over the years, loyalty programs have evolved well beyond airlines— expanding into all verticals of direct marketing in both the business to business (B2B) and business to consumer (B2C) marketplaces. Today, even mass marketers have adopted the loyalty concept. Why? Because brands industry-wide have recognized that there is proven value in cultivating a loyal customer.
Acquisition vs. retention
According to a new survey from the Chief Marketing Officer (CMO) Council, most marketers (61 percent) believe that loyalty program participants are the best and most profitable customers, while 65 percent view customer loyalty program investments as a very essential part of the marketing mix. We have also seen a shift away from mass acquisition to targeted retention. Companies know it is more expensive to engage, attract and convert customers versus understand, reward and retain their current customers. This switch from acquisition to retention benefits the consumers as the loyalty programs now are more focused on maximizing engagement and keeping the customer “loyal.”
In today’s very competitive market, loyalty is a business imperative. As loyalty becomes the most important word in the lexicon of CMOs, the concept has changed. Loyalty has evolved from a point-centric model to a process by which marketers use all consumer touch points, data, insights and voice of the customer responses (social media and survey insights) to increase the efficacy of their marketing communications, loyalty programs and offers to their customers. No matter what label we put on it—loyalty, engagement, advocacy, etc.—every brand needs to cultivate a base of devoted customers in order to drive long-term, sustainable success. These brands want to reach out to the consumer in new ways that create engagement. This generates opportunities for consumers to earn more from their programs than ever before.
Because of new engagement technologies, the ability of consumers to extract more value out of their programs has never been greater. Everything from the advent of social media (Facebook “likes” and company specific “tweets”), check-in services (Gowalla and Foursquare), mobile proximity and targeted communications (Gold Mobile and Mocapay) to transaction-based credit card insert and on-line statements (Clovr, BillShrink and Cardlytics) and deal of the day offers (Groupon and Living Social) are continuing to change the loyalty landscape.
Consumers are looking for “surprise and delight” that creates engagement in the channel in which they are most likely to partake—and companies are listening and engaging their customers in that channel like never before. Companies are tailoring their loyalty initiatives in ways that help consumers get their desired reward mix which, in turn, engages them in a deeper, long-term relationship with the brand.
Loyalty programs are no longer solely focused on points. Loyalty is a destination created through data-centric marketing communications that lead to sustainable and measureable change in customer behavior. There is also a realization that some consumers desire and will only respond to generous point-based or “hard” (discounts, offers, incremental value) benefit-based programs. On the other hand, some individuals want the “soft” program benefits (wine tasting, free shipping, complimentary gift wrapping, complimentary upgrades). Your ability to let the brand know your preference has never been greater.
Today’s stamps and spoons are points, status, and interactive communication achieved through traditional and incremental “loyalty” program offerings. This new breed of loyalty initiatives has made access, interest and reward levels more tailored—and engaging—to the individual. We have seen Sears/K-Mart, Southwest Airlines, Delta, Talbots, Target, Carlson Hotels, Capital One, and TGIFriday’s re-launch programs in recent years to increase their relevancy and engagement, therefore making the rewards more “empowering” to the consumer. So the opportunity to find programs that are more suited to the benefits that you, as an individual consumer, are looking for are greater than ever.