Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behavior behavior

r which is potentially of beneficial to the firm.[1]

Various loyalty cards

In marketing generally and in retailing more specifically, a loyalty card, rewards card, points card, advantage card, or club card is a plastic or paper card, visually similar to a credit card or debit card, that identifies the card holder as a member in a loyalty program. Loyalty cards are a system of the loyalty business model. In the United Kingdom it is typically called a loyalty card, in Canada a rewards card or a points card, and in the United States either a discount card, a club card or a rewards card. Cards typically have a barcode or magstripe that can be easily scanned, and some are even chip cards. Smallkeyring cards (also known as keytags) which serve as key fobs are often used for convenience in carrying and ease of access. A retail establishment or a retail group may issue a loyalty card to a consumer who can then use it as a form of identification when dealing with that retailer. By presenting the card, the purchaser is typically entitled to either a discount on the current purchase, or an allotment of points that can be used for future purchases. Hence, the card is the visible means of implementing a type of what economists call a twopart tariff. The card issuer requests or requires customers seeking the issuance of a loyalty card to provide a usually minimal amount of identifying or demographic data, such as name and address. Application forms usually entail agreements by the store concerning customer privacy, typically non-disclosure (by the store) of non-aggregate data about customers. The store one might expect uses aggregate data internally (and sometimes externally) as part of its marketing research. These cards can be used to determine, for example, a given customer's favorite brand of beer, or whether he or she is a vegetarian.

Where a customer has provided sufficient identifying information, the loyalty card may also be used to access such information to expedite verification during receipt of cheques or dispensing of medical prescription preparations, or for other membership privileges (e.g., access to a club lounge in airports, using afrequent flyer card).

Retail boom charters new customer loyalty schemes

By Lola Nayar, Indo-Asian News Service | Sunday, August 27, 2006 | 9:51:27 AM IST (+05:30 GMT) 0 Comment New Delhi, Aug 27 (IANS) The retail boom in India, heralded with mega malls dotting the landscape, has not just changed the shopping experience but is also generating a whole host of incentives to woo customers and retain their loyalty. While loyalty to a branded shirt or watch may be influenced by personal choice after the first buy, in the case of a host of consumer goods and services the add-ons are known to win the game and business, say market analysts. New Delhi, Aug 27 (IANS) The retail boom in India, heralded with mega malls dotting the landscape, has not just changed the shopping experience but is also generating a whole host of incentives to woo customers and retain their loyalty. While loyalty to a branded shirt or watch may be influenced by personal choice after the first buy, in the case of a host of consumer goods and services the add-ons are known to win the game and business, say market analysts. So whether it is Big Bazaar, Pantaloons, Spencer's stores or Shopper's Stop - all retail chains have on offer a loyalty card that helps you clock reward points on your purchases. The spate of reward programmes for customer loyalty shows the market is only just waking up to discover the mantra for winning customers for a long time relationship. Inspired by the success of Britain's Nectar and Canada's 'Air Miles' loyalty programme besides experiences in the US and Europe, an Indian American Vijay Bobba will be launching a mega multi-product and multi-services reward programme in India by month end. 'Following the retail boom in India, we will be launching a third party reward programme I-Mint by month end with Airtel (telecom), Hindustan Petroleum Corporation Ltd (HPCL), apparel store Lifestyle, Indian Airlines and online travel portal makemytrip.com as coalition partners,' said Bobba, CEO of Bangalore based Loyalty Solutions and Research Limited (LSRL). 'In addition we are signing up thousands of shopkeepers across India to join the programme, thereby giving customers a chance to collect reward points whether shopping for monthly grocery in the neighbourhood store or buying medicine at a pharmacy,' Bobba, co-founder and board member of US-based Loyalty Solutions Corporation, a consultancy firm, told IANS. Bobba felt Indian market is ripe for a rewards' programme that would cater to the needs of even a person whose monthly household budget is around Rs.2,000. 'We will be increasing the number of our coalition partners and expand in areas where the frequency of spend is very high. Our role model is UK's Nectar, which in just three years has captured 55 percent of the households,' said Bobba. In return, Bobba assured that the customers too would benefit with a faster collection of reward points. 'In less than six months on an average we hope to reward the first of many customers,' said Bobba who is targeting enlistment of five million customers in the first year of launch in four cities including Hyderabad, Bangalore, Mumbai and Delhi. With ICICI Ventures backing his maiden venture in India, Bobba is confident of the number of loyal customers growing to 15 million in just three to four years. Only time will prove how successful the I-Mint programme is, given that over the past few months several other loyalty programmes backed by credit or debit card institutions have been launched. Some of the recent ones are the State Bank of India (SBI) joining hands with the Indian Railways to offer you incentives on ticket booking using the bank credit card, Tata Group with SBI Card, Maruti Autocard in tie up with Citibank and oil marketing major Indian Oil Corporation (IndianOil). The main drawback with loyalty programmes in India has been the slow collection of reward points unless one runs up high bills or is a frequent traveller, admitted a customer loyalty progra

The trouble with loyalty schemes...

By Belinda Neal (Client Services Director, Crazy Horse) Published by The Wise Marketer in April 2005. Most loyalty schemes don't really work, says Belinda Neal of brand marketing agency Crazy Horse. Bold but true. So what makes them fail - but more importantly, what makes them successful? So many big brands spend huge proportions of their budgets these days on ill-devised loyalty schemes, most of which I challenge to really deliver the goods in terms of contribution to the bottom line. High street loyalty schemes, particularly those devised by supermarkets, are not always smart. What do they actually do to build loyalty? Most of the big players have their loyalty schemes already and, in essence, the loyalty card has become a commodity. The playing field is once again level. I have a loyalty card for every major supermarket chain that offers one, yet none of them actually have my loyalty. These days, it's the customers hold all the cards literally! So many of these programmes fail to radically change customer behaviour over time or deliver a bottom line contribution to profit. In fact, they reduce the amount of profit per customer by discounting existing behaviour rather than rewarding increased positive behaviour (e.g. spending more or returning more often). Everything to play for Not just in the supermarket sector, but in any other retail arena, the door is wide open for one retailer to change the nature of its loyalty scheme, to get smarter in its loyalty offering, and to deliver real relevance and perceived benefit to customers. Customer behaviour could be influenced positively, and ultimately deliver a far greater profit to the bottom line as well as enhanced brand and customer equity. So these are my six practical steps for establishing a successful loyalty scheme:

1. Define your objectives

Misunderstanding the principles of loyalty or setting vague objectives creates an opportunity for imprecise, ineffective marketing and leads to monolithic loyalty programmes. Define your objectives at the outset and judge the developing programme against them frequently. I would define these objectives as: Maximising retention of the most profitable customers; Maximising profit per customer. Segment your customer base The "one size fits all" approach doesn't work - it's been said hundreds of times by marketing experts around the world, yet many retailers still seem to try it, possibly for expedience. But it does not recognise the differences among customers. Many programmes assume that price is the key driver and common denominator. Consequently, those loyalty schemes become little more than discount programmes.

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3. Understand customer motivations

With a broad spread of customers, individual motivations will vary hugely. Loyalty schemes need to concentrate on relevance to the people they are trying to influence.

For some customer segments, particularly the high-value ones, it's all about service, convenience and added value. Special deals, special treatment at point of sale, and recognition of customer value should all be considered when developing an effective loyalty programme. Take the busy working mother with a relatively high level of disposable income. Is she truly motivated by 3 off her weekly basket of 200 worth of groceries? Or would she prefer less queuing? That's more likely to appeal, really. Preferential car parking is a probable favourite, too. Does she really want to remember to take in time-bound money-off coupons every week? That's far less likely. Would the stay-at-home mother prefer 2 off her bill or a crche in which to deposit her three children while she works her way around the store? And to the customer who 'does lunch', an invitation to take part in consumer panel will probably do more to drive loyalty than 5 off. The stereo-typed single adult male with his one basket may even prefer a "beer and spirits only" check-out to 50p off his shopping! Here's another idea: why not encourage pensioners to shop during quiet periods in exchange for a discount? That would not only reward them for their compliance but also free up space, trolleys, baskets, and check-outs during other busier periods. Better still, over-delivery is key: an out-of-the-blue "thank you" reward for a customer's business does far more to drive loyalty than a planned or expected reward. All that's needed is a bit of customer segmentation and a little imagination.

4. Use audience insights

Most loyalty schemes have at their disposal huge amounts of transactional data that could, with relatively little effort and cost, provide invaluable insights into customers' buying patterns, lifestyles, and what could motivate and change their behaviour patterns in-store. Supplementing this wealth of data with some quantitative research insights could fuel a whole new type of loyalty scheme that actively changes behaviour, delivers more profit, and builds greater active loyalty to the brand. The act of encouraging dialogue and feedback from consumers (e.g. through the online channel for busy, high-value segments) is even likely to drive loyalty in its own right. Linking behaviour at household level could save fortunes on the programme's communication budget and provide marketers with a clearer view of household spend and potential. Many hotels are running very successful loyalty programmes by encouraging guests to tell the hotel about themselves. Arriving at your destination and having the pillows you like, your favourite newspaper delivered, and a bottle of your preferred wine or mineral water waiting for you appears to build genuine loyalty.

5. Establish share of basket

Do you know who your most valuable customers are right now? A bank might think that it's those with the most money invested (and certainly this group is important) but what about the customers who go into debt at the end of the month, pay a few charges and then have their salary cheques paid in? This group is also highly lucrative. Always watch for the most profitable customers, even in unexpected places. Using data to establish behaviour patterns allows retail loyalty operators to identify which customers are promiscuous and which ones spend all (or most) of their sector spend with their store. Supermarkets can spot which customers shop weekly and establish how many weeks are missed each month. Then, with the scale of the opportunity established, effort and budget can be targeted toward the customers with potential to do more.

6. Build the bottom line

Receiving a 6 discount voucher that works when 60 or more is spent is not a good way of driving profitability if the customer you give it to already spends in excess of 190 each week. But 6 off each 60 spent, given to someone who usually spends 40 every second week, is worth your while! Or perhaps give 20% off to anyone who will spend at least 100 a week for a month; a promiscuous shopper with an average basket of 70 is likely to be enticed. Run the promotion for three months and they're likely to start forming a new shopping habit that involves consolidating their sector spend with you. The allocation of your marketing budget based on potential customer value rather than a flat allocation across the entire customer base will contribute significantly to your bottom line. And finally... Encouraging customers to use you as their supplier of preference, even going out of their way to choose you over your competitors, is fundamental to protecting your business. Ensuring service excellence and relevance of offering not only encourages customers to remain loyal but gives your margins room for growth. Successful loyalty programmes should take the high ground, and offer a differentiated proposition. But the all too common 'me too' programmes do little or nothing to enhance consumer perceptions or differentiate the brand.

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Manage your customer care

Customer loyalty schemes

While good overall service is the best way of generating customer loyalty, sometimes new relationships can be strengthened, or old ones refreshed, using customer loyalty schemes. These are programmes that use fixed or percentage discounts, extra goods or prizes to reward customers for behaviour that benefits your business. They can also be used to persuade customers to give you another try if you feel you have successfully tackled past problems with your customer service. You can decide to offer rewards on the basis of:

repeat custom cumulative spend orders for large quantities or with a high value prompt payment length of relationship

For example, a car wash might offer free cleaning every tenth visit or a free product if a customer opts for the deluxe service. A mail-order company might seek to revive the interest of lapsed customers by offering a voucher redeemable against purchases - response rates with such vouchers can be improved by setting an expiry date. You can also provide key customers with loyalty cards that entitle them to a discount on all their purchases. Employees who deal with customers' orders should be fully aware of current offers and keep customers informed. Sometimes brochures and other marketing materials are the best way of getting word out about a new customer incentive. Don't forget though that your customers' view of the overall service you provide will influence their loyalty much more than short-term rewards will.

Use customer care to increase sales

Your existing customers are among the most important assets of your business - they have already chosen you instead of your competitors. Keeping their custom costs far less than attracting new business, so it's worth taking steps to make sure that they're satisfied with the service they receive. There are a number of techniques you can employ, including:

providing a free customer helpline answering frequently asked questions on your website following up sales with a courtesy call providing free products that will help customers look after or make the most of their purchases sending reminders when services or check-ups are due

offering preferential discounts to existing customers on further purchases

Existing customer relationships are opportunities to increase sales because your customers will already have a degree of trust in your recommendations. Cross-selling and up-selling are ways of increasing either the range or the value of what you sell by pointing out new purchase possibilities to these customers. Alerting customers when new, upgraded or complimentary products become available perhaps through regular emails or newsletters - is one way of increasing sales. To retain your customers' trust, however, never try to sell them something that clearly doesn't meet their needs. Remember, your aim is to build a solid long-term relationship with your customers rather than to make quick one-off profits. Satisfied customers will contribute to your business for years, through their purchases and through recommendations and referrals of your business.

How to deal with customer complaints

Every business has to deal with situations in which things go wrong from a customer's point of view. However you respond if this happens, don't be dismissive of your customer's problem - even if you're convinced you're not at fault. Although it might seem contradictory, a customer with a complaint represents a genuine opportunity for your business:

if you handle the complaint successfully, your customer is likely to prove more loyal than if nothing people willing to complain are rare - your complaining customer may be alerting you to a problem

had gone wrong experienced by many others who silently took their custom elsewhere Complaints should be handled courteously, sympathetically and - above all - swiftly. Make sure that your business has an established procedure for dealing with customer complaints and that it is known to all your employees. At the very least it should involve:

listening sympathetically to establish the details of the complaint recording the details together with relevant material, such as a sales receipt or damaged goods offering rectification - whether by repair, replacement or refund appropriate follow-up action, such as a letter of apology or a phone call to make sure that the

problem has been made good If you're proud of the way you rectify problems - by offering no-questions refunds, for example - make sure your customers know about it. Your method of dealing with customer problems is one more way to stay ahead of your competitors.

Here's how I set up and used a customer-feedback programme

Joe Ibrahim is director of the painting and decorating division of Axis Europe PLC, a London-based construction company. Joe wanted to find a way of measuring how effectively the business was performing and devising a customer-feedback programme was one of a number of key performance indicators (KPIs) that the firm uses to measure its efficiency. What I did Started simply "We were looking for a proven way to measure our business performance and customer satisfaction seemed a good, basic place to start. So we devised a questionnaire for clients and we kept it tightly focused on the areas we wanted to measure. "One question, for example, was, 'Did the painters tidy up to your satisfaction?' The possible answers we offered clients were simple - either 'yes' or 'no' or a satisfaction-rating which ranged from one to ten and used faces going from scowls to smiles." Home in on specific issues "Any strong negative feedback is now immediately investigated, but otherwise we look at all the feedback from the jobs we've done half-yearly, present the findings on piecharts and search for any trends. "The results haven't always been what we've expected. For example, at first a lot of our clients - around 30 per cent - were saying that the contractors were not tidying up enough after themselves. That figure should be almost zero so we really attacked that problem. "We had a brainstorming session with contract managers and supervisors and discovered that often poor feedback is often driven by a perception of a problem rather than a real one. What we do now is not only be tidy but also highlight the perception of ourselves as tidy by using throwaway protective materials with our logo on. It's a way of exaggerating what we're doing. "Another common complaint discovered was about scaffolders leaving loose clips around. The scaffolders said they didn't do this but now for every clip found 5 is donated to charity." Share the finding "I report back all the findings from my division to other divisional directors. It's important to help them introduce customer-feedback schemes and it also helps me again measure what we're achieving and therefore improve things further. The whole system works like a big circle, really. "We also have monthly meetings with all the staff where we talk about customer satisfaction, performance, KPIs and where the company is going." What I'd do differently

Not expect 100 per cent of clients to understand the importance of feedback "We're learning as we go along. For the first three months we sent questionnaires out to clients by post with an SAE and the return levels were about 30 per cent. We then tried hand-delivering them for the next three months and we found we had 30 per cent returns again so we've gone back to the post. Hand-delivering takes a lot of time and 30 per cent is not a bad result."

(ii) Discounts For Loyalty One way to encourage loyalty is to offer discounts on future purchases. This could be money off the same item or related items (e.g. A discount off a TV stand when you buy a TV.) These discounts encourage the customer to save money, with the ideal outcome being a satisfied customer who becomes loyal to your business. A popular form of offer is introduce a friend discounts, whereby if a customer introduces a friend, they both get a discount or special offer. This not only encourages customers to return and be loyal, but also provides a positive introduction for new customers. E.g. Introduce a friend to our furniture and get 20 each on their first sale over 200.

(iii) Loyalty Schemes

Many large businesses (mainly shops and stores) now have loyalty schemes (e.g. The Nectar Card, Air Miles) which use discounts to encourage people to buy from them. They usually work using points, the more you spend with them, the more points you earn, points can then be used to save money on some items. The discounts are usually minimal (Often as little as 1-2%), but they provide a direct reason to remain loyal to one business. The cards given out with most schemes also provide a reminder of the business. The main benefit to most stores was being able to monitor what their customers bought, allowing them to move products and send out discounts for the products those customers purchased often. (e.g. If you bought lots of dog food, they would send you offers related to dog owners) This type of information gathering is useful, but is probably of little use to smaller businesses. It is also very expensive to start up and maintain. The cost of starting such a scheme is too large for most small businesses (e.g. System to register points, staff time, promotion of scheme, discounts given), and there is little evidence that they do increase loyalty (People often carry several cards for competing shops). Many larger companies are scaling back or ending their loyalty schemes, as they are finding it a large cost for little gain. A loyalty scheme will benefit a few small businesses, however, you should always take professional advice before starting such a scheme, as the costs can be large if unsuccessful.