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.

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.[43]

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

Unpredictability of Consumer Biases

Consumers have biases when it comes to many product choices they make and tend to purchase the same brand of various products regardless of whether they consciously consider the product to be superior to its competitors. Brand loyalty is often not based in logic or rational thought which makes it hard to predict. Many times, consumers are drawn to products for something that has no effect on the product itself such as logos, slogans, and package design which makes rebranding a dangerous proposition for businesses but one with great potential for drawing in new customers.

A study from 1964 demonstrated the illogical nature of these biases by offering a group of women the choice of four separate loaves of bread each week over the course of twelve weeks. The loaves had identical packaging except for a letter on each package to indicate which loaf was which. Unbeknownst to the women, the loaves of bread were identical. Despite this, half of the women showed clear loyalties to one of the letters by the end of the study.

Methods of Cultivating Customer Loyalty[edit]

Customer loyalty is decreasing due to consumers being able to quickly access product reviews and find cheaper options. That does not mean, however, that working to create loyal customers is a hopeless endeavor. Here are some methods by which to do so.

Consistent Quality

A single defective or low-quality product could be enough to turn a customer away, so businesses must offer a consistent product. If consumers buy a product that lives up to or even surpasses all of their expectations, they are unlikely to look elsewhere when buying that product again. Consistent delivery on expectations can make a brand’s reputation one of quality and trust which are big factors in forming relationships with customers.

Transparency and Communication

Open and honest communication can build trust with consumers. It is easier than ever to communicate with consumers thanks to social media which can be used to inform consumers as well as obtain feedback from them. Keeping avenues of communication open makes customers feel heard and valued.

Offer Benefits and Rewards to Existing Customers

Loyalty programs have been covered extensively throughout this article, and that is because they are so useful in getting customers to come back for more. Many businesses offer deals to new customers such as streaming services offering one week free trials. The existing customers, however, are neglected which can lead to them feeling unimportant. A company that rewards customers for their patronage is much more likely to retain them.

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