Disadvantages Of Loyalty Program

LOYALTY PROGRAMS Customer loyalty is an important part of management as it ensures profit with customer retention by issuing services that would increase satisfaction. Loyalty programs may present themselves as discounts or better services compared to the basic amenities. These programs often target individuals and attempt to establish a relationship with the brand, which is commonly known as brand loyalty. (Bolton et al., p. 95, 2000; Alazzam and Bach, p. 276, 2014).

According to Alazzam and Bach (p. 277, 2014), loyalty programs may fall into different types:

1. Fee-Based Loyalty System – the customer would pay for a lifetime or annual “membership” in order to avail of freebies or bonuses.

2. Rebate System – returning a sum of money back

95, 2000).

• As loyalty programs are prevalent in competitive markets and do not require strict contracts, companies would need to devise switching costs low enough that would still be profitable and keep them in the market, and attract customers. (Kumar and Shah, p. 318, 2004).

LOYALTY PROGRAM REWARDS

Factors to consider in before giving out Loyalty Program rewards:

1. Size and differences of the Loyalty Program rewards

The U.S. loyalty marketing industry has been approximated as a $6 billion industry with 2,250 separate loyalty programs while in the UK, sources estimate that 92% of the consumers take part in loyalty programs. Similarly, an ACNielsen study found out that 95 percent of Canadians belonged to loyalty programs general merchandisers or warehouse clubs in the year 2005. Despite these positive numbers, loyalty reward programs have failed to produce participation in most members is because of competition with other programs One explanation for the lack of success of programs is because of the lack of distinction between the competition and customers in terms of qualifying purchases, the rewards and the redemption requirements. This makes it difficult for one loyalty program to maintain any significant advantage over others.

2. Loyalty Program Objectives

Objectives of Loyalty program rewards are based usually on revenues, profits, consumer loyalty and information known about customers. Common objectives are increasing members, reducing member attrition, increasing member purchases, frequency and profitability and generating a good return on loyalty program investments and receiving information for market research. Companies that pursue both profit and revenues using the same program need to formulate a plan that does not hinder one goal in exchange of meeting the other.

3.