The costs savings and additional revenue generated from a positive customer relationship have proven to be a valuable resource. These loyal customers can offer a business a constant customer base, more frequent purchases, higher profit margins, and a group of peer-trusted supporters who voluntarily market the firm to prospective customers (Reichheld and Sasser, 1990). Additionally, evidence shows it costs much more to attract a new customer to a business than to get a current one to purchase again. For these reasons, marketing managers have developed and implemented number strategies in an attempt to encourage personal relationships with customers. The most significant being loyalty programs, which attempts to increase repeat purchases through
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For a loyalty program to be most effective, it must have a structure that motivates customers to view purchases as a sequence of decisions rather than as a single transaction. This is most commonly achieved through a series of tiers that correlate with the consumer’s spending habits. These tiers are meant to reduce costs and provide businesses with the opportunity to easily focus on the most beneficial customers based on their lifetime value. Membership in a particular tier provides customers a sense of identity and helps further bond customers to the firm and other members (Rigby and Ledingham, 2004). Another advantage is tiers can be used to further segment customers and provide differentiated rewards for various tiers. Additionally, research indicates that a program with more tiers will result in an enhanced feeling of status for elite members because of their relative position to the lower tiers (Drèze and Nunes, …show more content…
In order to get a better idea of why this limitation exists, we have to first inspect how the market behaves independent of loyalty programs. Various literature implies that, in many competitive markets, purchase decisions are characterized by a number of empirical regularities. Researchers found by using statistical analysis, it is possible to predict norms for each type of consumer behavior. These norms show that only around 10 percent of buyers are 100 percent loyal to a particular brand over a one-year period (Uncles, Ehrenberg, and Hammond, 1995). Additionally, exclusive loyalty only exists in a small number of buyers and these buyers tend to purchase the product
For a loyalty program to be most effective, it must have a structure that motivates customers to view purchases as a sequence of decisions rather than as a single transaction. This is most commonly achieved through a series of tiers that correlate with the consumer’s spending habits. These tiers are meant to reduce costs and provide businesses with the opportunity to easily focus on the most beneficial customers based on their lifetime value. Membership in a particular tier provides customers a sense of identity and helps further bond customers to the firm and other members (Rigby and Ledingham, 2004). Another advantage is tiers can be used to further segment customers and provide differentiated rewards for various tiers. Additionally, research indicates that a program with more tiers will result in an enhanced feeling of status for elite members because of their relative position to the lower tiers (Drèze and Nunes, …show more content…
In order to get a better idea of why this limitation exists, we have to first inspect how the market behaves independent of loyalty programs. Various literature implies that, in many competitive markets, purchase decisions are characterized by a number of empirical regularities. Researchers found by using statistical analysis, it is possible to predict norms for each type of consumer behavior. These norms show that only around 10 percent of buyers are 100 percent loyal to a particular brand over a one-year period (Uncles, Ehrenberg, and Hammond, 1995). Additionally, exclusive loyalty only exists in a small number of buyers and these buyers tend to purchase the product