More Stores Pushing Loyalty Programs as a Way to Save

Your key ring could soon be very full.

Businesses are hurting. We’re just not spending at the levels we were before the recession started.

Companies large and small have tried luring new customers by offering deals on Groupon and other daily deal websites. These deals have succeeded in getting people in the door, but what they’ve found is that the deals attract mostly bargain hunters and cheapskates. These people come in once for a deal and never return.

Obviously that’s not what retailers want. We know it costs significantly more to attract new customers than to retain current ones. And studies have shown that current customers spend more than new ones. So from the retailer’s point of view, keeping current customers coming back is the gold standard.

This has led businesses to a promotional strategy that’s booming right now: loyalty programs. They come in all shapes and sizes. Among the more popular programs is also one that’s been around for a while: Amazon’s Prime, which offers unlimited free 2-day shipping on most products for $79 a year. Prime’s appeal is that it offers something we all want: free shipping. Amazon has positioned itself as the Walmart of the web with free shipping and good customer service to boot.

Another example is McDonald’s monopoly game. Who doesn’t love Monopoly, right? You go back time and time again, peeling off those little game pieces and filling out your game board. If you’re lucky you’ll win a free Big Mac along the way. I’m not even sure anybody’s ever won the big prize, but that’s beside the point. When businesses make loyalty fun we gladly come back for more.

A final example is the airlines’ frequent flier programs. Many of them have several tiers based on how much you spend each year. The more you spend, the greater your access to benefits like early boarding and plush airport lounges.

Large companies aren’t alone in the game. Over the coming weeks and months you’ll start to see mom-and-pop stores and independent restaurants offering simple loyalty programs to encourage return visits. As an example, a pizza shop might offer a free pizza after you buy seven. You could see spas offering free services after so many visits. These programs will be built to reward existing customers for coming back.

Compare these programs with other types of loyalty I talked about recently: loyalty based on habit or inertia. Your loyalty to a business should be based on how you’re treated and the value you receive.

Some companies actually penalize customers for their loyalty. Among them are cable and cell phone providers, banks, and most auto insurers. They routinely reward new customers with discounts while sticking it to their long-time customers. It’s funny (or sad?) that companies with horrible customer service reputations are most often guilty of this.

Ask yourself why you’re loyal to the companies you do business with. Are you getting a good deal or is inertia at work?

Loyalty programs are a good way for companies to reward repeat customers and maintain their customer base. You benefit too, but only if you’d buy the product or service anyway. If not you’re just throwing money away.

Bottom line: Don’t assume you’ll benefit from loyalty. Use these loyalty programs to sweeten the deal for things you already buy.

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5 thoughts on “More Stores Pushing Loyalty Programs as a Way to Save

  1. Having all of the loyalty cards annoys me so much so that I have them on a separate key ring that is separate from all my keys. I know there are apps where you can scan them onto your phone but I have heard people sometimes have issues with them.

    You’re totally right—companies like cable providers do not reward loyalty at all. Due to the building we live in, we only have access to certain providers and no one wants to give you a discount unless you call and complain repeatedly. Maybe you’ll get $5 off at some point. But now internet service providers in my area are charging existing customers with a $4 fee to essentially “rent” the modem you got from them out of no where. How nice!

  2. Our communications company is pretty good with us and we are long time customers. We call in each year and negotiate a new plan with all the discounts we can get and we do negotiate. I think the rewards programs are popping up everywhere because it’s competition for these businesses. They want the business so if they don’t keep up with their rivals the customers will go elsewhere. I always ask for discounts and programs, why, because almost all of them have some form of something. Mr.CBB

  3. I love my grocery store loyalty program but the rest of the ones that I have dealt with suck. I don’t like jumping through hoops to get special deals.

  4. Pingback: Four Tips for Combating Loyalty Program Fatigue – Automotive Marketing Professionals « Automotive Professionals

  5. Pingback: Simple Ways to Benefit the Business and Consumer

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