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The Science Behind Loyalty Programmes

Home / Customer Loyalty / The Science Behind Loyalty Programmes

At one point or another we have all been participants and beneficiaries of good initiatives such as “buy one get one free”, “spend this much in a transaction and get a certain percentage off” and “buy now but only start paying at a later stage”. All of these are marketing strategies used by retail suppliers to entice consumers to come their way. Of course the usage of such strategies is beneficial to both the supplier and consumer; the suppliers increase customer retention and consumers attain more than they actually pay for. These kinds of marketing strategies led to the development of the term Loyalty Programme (LP). The LP was developed as a marketing tool aimed at creating interaction between suppliers and consumers. On the one hand there are suppliers wanting to keep existing consumers and attract new ones; for such goals to be achieved the supplier has to interact with current consumers and market to new ones by indirectly using the current consumers. On the other hand there are consumers, who are acutely aware of their expenditure and any gain in value that can be obtained. This results in emotional attachment to any future transactions with the result being that the consumer ends up showing allegiance to a certain supplier who can provide the required value across transactions.

In recent times there have been developments with regards to the LP. Instead of the supplier just giving away freebies with every transaction conducted, the suppliers have changed tactics and started to mine consumer demographic information. This has changed the face of LP and enhanced the interaction between suppliers and consumers. Nowadays the LP is not strictly based on incentivising consumers that have shown allegiance to suppliers over a certain period of time but also in growing relationships. This is by done by signing up consumers (with contact details) onto the programme and monitoring their transactions over time. The transactions made by the consumer may be monitored using vouchers, plastic cards similar to debit cards or the newly introduced system of mobile applications. The LP uses a point system as a measure to determine when a consumer is eligible for an incentive or reward. With every transaction made, the consumer will be credited with a point. The points will be tallied up after a certain period. Depending on the total points the consumer has achieved, the points may then be redeemed for an incentive or reward. An incentive may be cash back, buy one get one free or even a discount offer – this all varies depending on the supplier. According to the Consumer Protection Act, it is the responsibility of the supplier to make sure that any incentive offered be made available to the consumer at the relevant time unless the supplier has notified consumers in advance of any service or goods that might not be available. The consumer is also not in place to pay for any administration costs relating to the LP including any costs involved in receiving the offered incentive. Also the consumers receiving the incentive must not be offered products inferior to those offered to any other consumer making a transaction during that period.

With the information acquired by suppliers through the LP, suppliers are able to market new products directly to the relevant consumer, ¬†increase personalised communications and improve the customer experience. The monitoring of transactions made by consumers can help suppliers better understand the consumer’s needs and enable better business management and market understanding.

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