Loyalty marketing
Encyclopedia
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.
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 program
s are the most visible customer loyalty marketing programs.
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.
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 lithographs
. Beginning in 1872, the Grand Union Tea Company gave tickets to customers that could be exchanged for merchandise in the company catalog of Grand Union stores.
The first trading stamps were introduced in 1891, the Blue Stamp Trading System, where stamps affixed to booklets could be redeemed for store products. The Sperry and Hutchinson Company, started in 1896 in Jackson, Michigan
, was the first third-party provider of trading stamps for various companies, including dry goods dealers, gas stations
and later supermarket
s. S&H Green Stamps
, as the company was commonly called, opened its first redemption center in 1897. Customers could take their filled booklets of "green stamps" and redeem them for household products, kitchen items, and personal items. When the G.I.s returned from World War II the trading stamps business took off when numerous third-party companies created their own trading stamp programs to offer to supermarkets and other retailers.
Marketers of retail products used programs targeted at children to sell to their parents through the use of premiums. Kellogg's Corn Flakes
had the first cereal
premium with The Funny Jungleland Moving Pictures Book. The book was originally available as a prize
that was given to the customer in the store with the purchase of two packages of the cereal. But in 1909, Kelloggs changed the book give-away to a premium mail-in offer for the cost of a dime
. Over 2.5 million copies of the book were distributed in different editions over a period of 23 years.
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".
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.
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.
Some of the earliest prizes were cigarette cards — trade cards advertising the product (not to be confused with trading cards) that were inserted into paper packs of cigarettes as stiffeners to protect the contents. Allan and Ginter in the U.S. in 1886, and British company W.D. & H.O. Wills
in 1888, were the first tobacco companies to print advertisements and, a couple years later, lithograph pictures on the cards with an encyclopedic variety of topics from nature to war to sports — subjects that appealed to men who smoked. By 1900, there were thousands of tobacco card sets manufactured by 300 different companies. Following the success of cigarette cards, trade cards were produced by manufacturers of other products and included in the product or handed to the customer by the store clerk at the time of purchase. World War II put an end to cigarette card production due to limited paper resources, and after the war cigarette cards never really made a comeback. After that collectors of prizes from retail products took to collecting tea cards in the UK and bubble gum cards in the US.
The first baseball cards were trade cards featuring the Brooklyn Atlantics produced in 1868 by Peck and Snyder, a sporting goods company that manufactured baseball equipment. In 1869, Peck and Snyder trade cards featured the first professional team, the Red Stockings. Most of the baseball cards around the beginning of the 20th century came in candy and tobacco products produced by such companies as Breisch-Williams confectionery company of Oxford, Pennsylvania, American Caramel Company
, the Imperial Tobacco Company of Canada, and Cabañas, a Cuban cigar manufacturer. In fact it is a baseball set, known as the T-106 tobacco card set, distributed by the American Tobacco Company
in 1909 that is considered by collectors to be the most popular set of cigarette cards. In 1933, Goudey Gum Company
of Boston issued baseball cards with players biographies on the backs and was the first to put baseball cards in bubble gum. Bowman Gum
of Philadelphia issued its first baseball cards in 1948 and became the biggest issuer of baseball cards from 1948 to 1952.
The most famous use of prizes in the United States (and the word "prize" in this context) is Cracker Jack
brand popcorn confection. Prizes have been inserted into every package of Cracker Jack continuously since 1912. W.K. Kellogg was the first to introduce prizes
in boxes of cereal. The marketing strategy that he established has produced thousands of different cereal box prize
s that have been distributed by the tens of billions. Frito-Lay
is a world icon in the field of in-package prizes. Besides being the current owner of Cracker Jack, the U.S. popcorn confection brand known for the "Prize Inside", Frito-Lay also regularly includes tazos
and tattoos in packages of Lay's chips worldwide. In parts of Latin America, Frito-Lay has even introduced a brand called Cheetos Sorpresa (English: Surprise), which includes a licensed prize (from movies, television, and video games) in every 29–gram bag.
" was coined long after Montgomery Ward`s time. In 1967 Lester Wunderman
identified, named, and defined "direct marketing". Wunderman — considered to be the father of contemporary direct marketing — is behind the creation of the toll-free 1-800 number and numerous mail order based loyalty marketing programs including the Columbia Record Club, the magazine subscription card, and the American Express Customer Rewards program.
launched the first full-scale loyalty marketing program of the modern era with the AAdvantage
frequent flyer program
. This revolutionary program was the first to reward "frequent fliers" with reward miles that could be accumulated and later redeemed for free travel. Many airlines and travel providers saw the incredible value in providing customers with an incentive to use a company exclusively and be rewarded for their loyalty. Within a few years, dozens of travel industry
companies launched similar programs. The AAdvantage
program now boasts over 50 million active members.
and coupons. CLOs connect offers or discounts directly to a consumer’s credit card or debit card, which can then be redeemed at the point of sale. CLOs have been implemented by American Express
Kopecki, Dawn http://www.bloomberg.com/news/2011-07-19/amex-facebook-page-lets-users-get-customized-discounts-offers.html “AmEx Facebook Page Lets Users Get Customized Discounts, Offers”, “Bloomberg”, July 19, 2011. Retrieved on July 29, 2011 and Groupon
and CLO technology has been developed by companies such as Cartera Commerce, Cardlytics, Clovr Media, and Offermatic.
In order to receive and use CLOs, consumers must willingly opt in to a CLO program and provide their credit/debit card information.
When consumers see relevant CLO-enabled advertisements and product offers while browsing online, using a mobile device, watching TV, reading a newspaper or magazine or listening to the radio they can click, text or scan a QR code
to link the CLO-enabled ad directly to their credit/debit card. After consumers make a purchase at the designated retail location, the savings appeared are credited directly to their bank, credit card or PayPal
account. As such, CLOs eliminate point-of-sale integration, mail-in rebates and paper coupons. Offers are typically based upon consumer preferences and previous purchase history.
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.
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
.
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 AAdvantage
program and Starwood Hotels' Preferred Guest program have received industry awards, called "Freddie Awards" by Inside Flyer Magazine and its publisher 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, Loyalty Rules!, 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.
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.
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.
The most recent loyalty marketing programs rely on viral marketing
techniques to spread word of incentive and inducement programs through word of mouth.
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
, based on strategic management
Strategic management
Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments...
, in which a company focuses on growing and retaining existing customers through incentives. Branding
Brand management
Brand management is the application of marketing techniques to a specific product, product line, or brand.The discipline of brand management was started at Procter & Gamble as a result of a famous memo by Neil H...
, product marketing
Product marketing
Product marketing deals with the first of the "7P"'s of marketing, which are Product, Pricing, Place, and Promotion, Packaging, Positioning & People....
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.
The discipline of customer loyalty
Loyalty business model
The loyalty business model is a business model used in strategic management in which company resources are employed so as to increase the loyalty of customers and other stakeholders in the expectation that corporate objectives will be met or surpassed...
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
Fred Reichheld
Frederick F. Reichheld is a United States business author and business strategist best known for his research and writing on the loyalty business model and Loyalty Marketing. His books include The Loyalty Effect , Loyalty Rules! , and The Ultimate Question: Driving Good Profits and True Growth...
, 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 program
Incentive program
An incentive program is a formal scheme used to promote or encourage specific actions or behavior by a specific group of people during a defined period of time. Incentive programs are particularly used in business management to motivate employees, and in sales to attract and retain customers...
s are the most visible customer loyalty marketing programs.
Premiums
PremiumsPremium (marketing)
Premiums are promotional items—toys, collectables, souvenirs and household products—that are linked to a product, and often require box tops, tokens or proofs of purchase to acquire. The consumer generally has to pay at least the shipping and handling costs to receive the premium...
are items that a retail customer can receive by redeeming proofs of purchase
Proof of purchase
Proof of purchase is often required for sales promotions and manufacturer rebates as evidence that the customer purchased the product. When multiple purchases are required to redeem these rewards, it is referred to as a premium incentive or collector mechanic.Traditional proof of purchase systems...
from a specific product or store. This was one of the first loyalty marketing programs.
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 lithographs
Lithography
Lithography is a method for printing using a stone or a metal plate with a completely smooth surface...
. Beginning in 1872, the Grand Union Tea Company gave tickets to customers that could be exchanged for merchandise in the company catalog of Grand Union stores.
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. The Sperry and Hutchinson Company, started in 1896 in Jackson, Michigan
Jackson, Michigan
Jackson is a city located along Interstate 94 in the south central area of the U.S. state of Michigan, about west of Ann Arbor and south of Lansing. It is the county seat of Jackson County. As of the 2010 census, the city population was 33,534...
, was the first third-party provider of trading stamps for various companies, including dry goods dealers, gas stations
Filling station
A filling station, also known as a fueling station, garage, gasbar , gas station , petrol bunk , petrol pump , petrol garage, petrol kiosk , petrol station "'servo"' in Australia or service station, is a facility which sells fuel and lubricants...
and later supermarket
Supermarket
A supermarket, a form of grocery store, is a self-service store offering a wide variety of food and household merchandise, organized into departments...
s. S&H Green Stamps
S&H Green Stamps
S&H Green Stamps were trading stamps popular in the United States from the 1930s until the late 1980s. They were distributed as part of a rewards program operated by the Sperry and Hutchinson company , founded in 1896 by Thomas Sperry and Shelly Hutchinson...
, as the company was commonly called, opened its first redemption center in 1897. Customers could take their filled booklets of "green stamps" and redeem them for household products, kitchen items, and personal items. When the G.I.s returned from World War II the trading stamps business took off when numerous third-party companies created their own trading stamp programs to offer to supermarkets and other retailers.
Marketing through children
Marketers of retail products used programs targeted at children to sell to their parents through the use of premiums. Kellogg's Corn Flakes
Corn flakes
Corn flakes are a popular breakfast cereal originally manufactured by Kellogg's through the treatment of maize. A patent for the product was filed on May 31, 1895, and issued on April 14, 1896.-History:...
had the first cereal
Breakfast cereal
A breakfast cereal is a food made from processed grains that is often, but not always, eaten with the first meal of the day. It is often eaten cold, usually mixed with milk , water, or yogurt, and sometimes fruit but sometimes eaten dry. Some cereals, such as oatmeal, may be served hot as porridge...
premium with The Funny Jungleland Moving Pictures Book. The book was originally available as a prize
Prize (marketing)
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 that are included in the price of the product with the intent to boost sales...
that was given to the customer in the store with the purchase of two packages of the cereal. But in 1909, Kelloggs changed the book give-away to a premium mail-in offer for the cost of a dime
Dime (United States coin)
The dime is a coin 10 cents, one tenth of a United States dollar, labeled formally as "one dime". The denomination was first authorized by the Coinage Act of 1792. The dime is the smallest in diameter and is the thinnest of all U.S...
. Over 2.5 million copies of the book were distributed in different editions over a period of 23 years.
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
Captain Midnight
Captain Midnight is a U.S. adventure franchise first broadcast as a radio serial from 1938 to 1949. Sponsored by the Skelly Oil Company, the radio program was the creation of radio scripters Wilfred G. Moore and Robert M...
was one of the best known. The early sponsor of Captain Midnight was Skelly Oil
Skelly Oil
Skelly Oil Company was a medium sized "major" oil company founded in 1919 by William Grove Skelly, Chesley Coleman Herndon and Frederick A. Pielsticker in Tulsa, Oklahoma. Previously, about 1915, Mr. Skelly had formed Skelly Sanky Oil Company in Duncan, Oklahoma. Mr...
, and parents could get forms to mail-in for radio premiums at the gas stations. Later, Ovaltine
Ovaltine
Ovaltine is a brand of milk flavoring product made with malt extract , sugar , cocoa, and whey...
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".
Boxtops
In 1929, Betty Crocker
Betty Crocker
Betty Crocker AKA: batter witch is a cultural icon, as well as brand name and trademark of American Fortune 500 corporation General Mills. The name was first developed by the Washburn Crosby Company in 1921 as a way to give a personalized response to consumer product questions. The name Betty was...
issued coupons that could be used to redeem for premiums
Premium (marketing)
Premiums are promotional items—toys, collectables, souvenirs and household products—that are linked to a product, and often require box tops, tokens or proofs of purchase to acquire. The consumer generally has to pay at least the shipping and handling costs to receive the premium...
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.
Prizes
PrizesPrize (marketing)
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 that are included in the price of the product with the intent to boost sales...
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.
Tobacco inserts
Some of the earliest prizes were cigarette cards — trade cards advertising the product (not to be confused with trading cards) that were inserted into paper packs of cigarettes as stiffeners to protect the contents. Allan and Ginter in the U.S. in 1886, and British company W.D. & H.O. Wills
W.D. & H.O. Wills
W.D. & H.O. Wills was a British tobacco importer and cigarette manufacturer formed in Bristol, England. It was one of the founding companies of Imperial Tobacco.-History:...
in 1888, were the first tobacco companies to print advertisements and, a couple years later, lithograph pictures on the cards with an encyclopedic variety of topics from nature to war to sports — subjects that appealed to men who smoked. By 1900, there were thousands of tobacco card sets manufactured by 300 different companies. Following the success of cigarette cards, trade cards were produced by manufacturers of other products and included in the product or handed to the customer by the store clerk at the time of purchase. World War II put an end to cigarette card production due to limited paper resources, and after the war cigarette cards never really made a comeback. After that collectors of prizes from retail products took to collecting tea cards in the UK and bubble gum cards in the US.
Trade cards to trading cards
The first baseball cards were trade cards featuring the Brooklyn Atlantics produced in 1868 by Peck and Snyder, a sporting goods company that manufactured baseball equipment. In 1869, Peck and Snyder trade cards featured the first professional team, the Red Stockings. Most of the baseball cards around the beginning of the 20th century came in candy and tobacco products produced by such companies as Breisch-Williams confectionery company of Oxford, Pennsylvania, American Caramel Company
Lancaster Caramel Company
The Lancaster Caramel Company of Lancaster, Pennsylvania was founded by Milton S. Hershey in 1886. It was Hershey's first successful candy company and helped him build a reputation. The Hershey Chocolate Company became a subsidiary of the Lancaster Caramel Company in 1894...
, the Imperial Tobacco Company of Canada, and Cabañas, a Cuban cigar manufacturer. In fact it is a baseball set, known as the T-106 tobacco card set, distributed by the American Tobacco Company
American Tobacco Company
The American Tobacco Company was a tobacco company founded in 1890 by J. B. Duke through a merger between a number of U.S. tobacco manufacturers including Allen and Ginter and Goodwin & Company...
in 1909 that is considered by collectors to be the most popular set of cigarette cards. In 1933, Goudey Gum Company
Goudey
The Goudey Gum Company was an American chewing gum company started in 1919. The company was founded by Enos Gordon Goudey of Barrington Passage, Nova Scotia. Formerly an employee of Beemans, he opened a factory in Boston, Massachusetts in 1919 and later in Allston. It operated there from 1924...
of Boston issued baseball cards with players biographies on the backs and was the first to put baseball cards in bubble gum. Bowman Gum
Bowman Gum
Bowman Gum was a Philadelphia-based manufacturer of bubble gum and trading cards in the period surrounding World War II founded by Jacob Warren Bowman. Originally known as Gum, Inc., the company produced a series of cards known as the "Play Ball" sets each year from 1939 to 1941...
of Philadelphia issued its first baseball cards in 1948 and became the biggest issuer of baseball cards from 1948 to 1952.
Modern packaged foods
The most famous use of prizes in the United States (and the word "prize" in this context) is Cracker Jack
Cracker Jack
Cracker Jack is a U.S. brand of snack consisting of strong molasses flavored candy-coated popcorn and peanuts, well known for being packaged with a prize of nominal value inside. Some food historians consider it the first junk food...
brand popcorn confection. Prizes have been inserted into every package of Cracker Jack continuously since 1912. W.K. Kellogg was the first to introduce prizes
Prize (marketing)
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 that are included in the price of the product with the intent to boost sales...
in boxes of cereal. The marketing strategy that he established has produced thousands of different cereal box prize
Cereal box prize
A cereal box prize is a promotional toy or small item that is offered as an incentive to buy a particular breakfast cereal. Prizes are found inside or sometimes on the cereal box...
s that have been distributed by the tens of billions. Frito-Lay
Frito-Lay
Frito-Lay North America is the division of PepsiCo that manufactures, markets and sells corn chips, potato chips and other snack foods. The primary snack food brands produced under the Frito-Lay name include Fritos corn chips, Cheetos cheese-flavored snacks, Doritos and Tostitos tortilla chips,...
is a world icon in the field of in-package prizes. Besides being the current owner of Cracker Jack, the U.S. popcorn confection brand known for the "Prize Inside", Frito-Lay also regularly includes tazos
Tazos
Tazos are round circular disks, which are found in packets of chips made by Frito-Lay and its subsidiaries around the world. The idea behind Tazos started out similar to Pogs, whereby each Tazo contained a score value, and a game was played to 'win' Tazos from other players.Tazos have been...
and tattoos in packages of Lay's chips worldwide. In parts of Latin America, Frito-Lay has even introduced a brand called Cheetos Sorpresa (English: Surprise), which includes a licensed prize (from movies, television, and video games) in every 29–gram bag.
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. Together Ward and his [long time] competitor Sears changed the direction of the American marketplace by introducing the concept of individuality with the term consumption, allowing therefore the generations of today to take full control of their consumption behaviours and all of this in complete privacy. Today, the mail order catalogue industry Montgomery funded is worth approximately 100 billions of dollars, and generates over 2 trillion only in [incremental] sales and supports till this day an estimated 10.9 million jobs either directly related to marketing industry or dependent upon it.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. The term "direct marketingDirect marketing
Direct marketing is a channel-agnostic form of advertising that allows businesses and nonprofits to communicate straight to the customer, with advertising techniques such as mobile messaging, email, interactive consumer websites, online display ads, fliers, catalog distribution, promotional...
" was coined long after Montgomery Ward`s time. In 1967 Lester Wunderman
Lester Wunderman
Lester Wunderman is an advertising executive widely considered the creator of modern-day direct marketing. His innovations include the magazine subscription card, the toll-free 1-800 number, loyalty rewards programs, and many more...
identified, named, and defined "direct marketing". Wunderman — considered to be the father of contemporary direct marketing — is behind the creation of the toll-free 1-800 number and numerous mail order based loyalty marketing programs including the Columbia Record Club, the magazine subscription card, and the American Express Customer Rewards program.
Frequent flyers
On May 1, 1981 American AirlinesAmerican Airlines
American Airlines, Inc. is the world's fourth-largest airline in passenger miles transported and operating revenues. American Airlines is a subsidiary of the AMR Corporation and is headquartered in Fort Worth, Texas adjacent to its largest hub at Dallas/Fort Worth International Airport...
launched the first full-scale loyalty marketing program of the modern era with the AAdvantage
AAdvantage
AAdvantage is the frequent flyer program of American Airlines. Launched May 1, 1981, it was the second such loyalty program in the world , and remains the largest with more than 67 million members as of October 2011.Miles accumulated in the program allow members to redeem tickets, upgrade service...
frequent flyer program
Frequent flyer program
A frequent flyer program is a loyalty program offered by many airlines. Typically, airline customers enrolled in the program accumulate frequent flyer miles corresponding to the distance flown on that airline or its partners. There are other ways to accumulate miles...
. This revolutionary program was the first to reward "frequent fliers" with reward miles that could be accumulated and later redeemed for free travel. Many airlines and travel providers saw the incredible value in providing customers with an incentive to use a company exclusively and be rewarded for their loyalty. Within a few years, dozens of travel industry
Tourism
Tourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people "traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes".Tourism has become a...
companies launched similar programs. The AAdvantage
AAdvantage
AAdvantage is the frequent flyer program of American Airlines. Launched May 1, 1981, it was the second such loyalty program in the world , and remains the largest with more than 67 million members as of October 2011.Miles accumulated in the program allow members to redeem tickets, upgrade service...
program now boasts over 50 million active members.
Card linked offers
The early part of the 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 mobile paymentMobile Payment
Mobile financial services, also referred to as mobile money, mobile payment, mobile banking, mobile money transfer and mobile wallet generally refer to payment services operated under financial regulation and performed from or via a mobile device....
and coupons. CLOs connect offers or discounts directly to a consumer’s credit card or debit card, which can then be redeemed at the point of sale. CLOs have been implemented by American Express
American Express
American Express Company or AmEx, is an American multinational financial services corporation headquartered in Three World Financial Center, Manhattan, New York City, New York, United States. Founded in 1850, it is one of the 30 components of the Dow Jones Industrial Average. The company is best...
Kopecki, Dawn http://www.bloomberg.com/news/2011-07-19/amex-facebook-page-lets-users-get-customized-discounts-offers.html “AmEx Facebook Page Lets Users Get Customized Discounts, Offers”, “Bloomberg”, July 19, 2011. Retrieved on July 29, 2011 and Groupon
Groupon
Groupon is a deal-of-the-day website that features discounted gift certificates usable at local or national companies. Groupon was launched in November 2008, the first market for Groupon was Chicago, followed soon thereafter by Boston, New York City, and Toronto...
and CLO technology has been developed by companies such as Cartera Commerce, Cardlytics, Clovr Media, and Offermatic.
In order to receive and use CLOs, consumers must willingly opt in to a CLO program and provide their credit/debit card information.
When consumers see relevant CLO-enabled advertisements and product offers while browsing online, using a mobile device, watching TV, reading a newspaper or magazine or listening to the radio they can click, text or scan a QR code
QR code
A QR code is a type of matrix barcode first designed for the automotive industry. More recently, the system has become popular outside of the industry due to its fast readability and comparatively large storage capacity. The code consists of black modules arranged in a square pattern on a white...
to link the CLO-enabled ad directly to their credit/debit card. After consumers make a purchase at the designated retail location, the savings appeared are credited directly to their bank, credit card or PayPal
PayPal
PayPal is an American-based global e-commerce business allowing payments and money transfers to be made through the Internet. Online money transfers serve as electronic alternatives to paying with traditional paper methods, such as checks and money orders....
account. As such, CLOs eliminate point-of-sale integration, mail-in rebates and paper coupons. Offers are typically based upon consumer preferences and previous purchase history.
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.
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 rentalCar rental
A car rental or car hire agency is a company that rents automobiles for short periods of time for a fee...
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
Loyalty program
Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behavior — behavior which is potentially beneficial to the firm....
.
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 AAdvantage
AAdvantage
AAdvantage is the frequent flyer program of American Airlines. Launched May 1, 1981, it was the second such loyalty program in the world , and remains the largest with more than 67 million members as of October 2011.Miles accumulated in the program allow members to redeem tickets, upgrade service...
program and Starwood Hotels' Preferred Guest program have received industry awards, called "Freddie Awards" by Inside Flyer Magazine and its publisher Randy Petersen
Randy Petersen
Randy Petersen is editor and publisher of InsideFlyer magazine, founder of FlyerTalk, an online travel bulletin board and the idea guy behind , and several other frequent flyer/biz travel Web sites...
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, Loyalty Rules!, Fred Reichheld
Fred Reichheld
Frederick F. Reichheld is a United States business author and business strategist best known for his research and writing on the loyalty business model and Loyalty Marketing. His books include The Loyalty Effect , Loyalty Rules! , and The Ultimate Question: Driving Good Profits and True Growth...
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.
Loyalty marketing and the loyalty business model
The loyalty business modelLoyalty business model
The loyalty business model is a business model used in strategic management in which company resources are employed so as to increase the loyalty of customers and other stakeholders in the expectation that corporate objectives will be met or surpassed...
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
Word-of-mouth marketing
Word-of-mouth marketing , also called word of mouth advertising, is an unpaid form of promotion—oral or written—in which satisfied customers tell other people how much they like a business, product, service, or event...
and advertising
Advertising
Advertising is a form of communication used to persuade an audience to take some action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering, although political and ideological advertising is also common...
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.
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.
The most recent loyalty marketing programs rely on viral marketing
Viral marketing
Viral marketing, viral advertising, or marketing buzz are buzzwords referring to marketing techniques that use pre-existing social networks to produce increases in brand awareness or to achieve other marketing objectives through self-replicating viral processes, analogous to the spread of viruses...
techniques to spread word of incentive and inducement programs through word of mouth.
See also
- Business modelBusiness modelA business model describes the rationale of how an organization creates, delivers, and captures value...
- Customer loyalty programs
- Incentive ProgramIncentive programAn incentive program is a formal scheme used to promote or encourage specific actions or behavior by a specific group of people during a defined period of time. Incentive programs are particularly used in business management to motivate employees, and in sales to attract and retain customers...
- Loyalty programLoyalty programLoyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behavior — behavior which is potentially beneficial to the firm....
- Relationship marketingRelationship marketingRelationship marketing was first defined as a form of marketing developed from direct response marketing campaigns which emphasizes customer retention and satisfaction, rather than a dominant focus on sales transactions....
- Strategic managementStrategic managementStrategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments...
- Trust-based marketingTrust-based marketingTrust-based marketing is a marketing theory based on building consumer relationships through trustworthy dialogue and unbiased information. The concept was originated by Dr. Glen L. Urban, Professor and former Dean of the MIT Sloan School of Management...