The earliest customer loyalty programs were "green stamp" programs in
which customers collected stamps from retailers (double stamps on
Tuesdays!), then collected them into books, which were redeemable for
merchandise from a catalog. The best known was Sperry & Hutchinson
(S&H), which first introduced Green Stamps in 1896 in Jackson, MI.
The stamps reached their peak in the two decades after World War II,
but had begun to fade when sold in 1981. S&H still exists and has a
history here:
http://www.greenpoints.com/info/inf_aboutsh.asp
S&H had lots of competition in the stamp business, particularly from
regional companies such as Eagle Stamp, Top Value, King Korn, Triple
S, Gold Bell and Plaid. Often the books of stamps were redeemable for
a set $2 or $3 value at the retailer -- adding value for the retailer
by getting customers back in the store.
During the 40's and 50's other industries also ran loyalty programs,
including coupons in cigarette packages and premiums such as drinking
glasses, free maps, car washes -- and savings stamps -- at gas
stations.
Let us also not forget General Mills longstanding Betty Crocker points
program, which dates to 1929 when it was used to establish the Gold
Medal flour brand. A customer collects points from the top of General
Mills cereal, baked goods and other products, which are redeemable for
kitchenware from a catalog:
http://www.isourceonline.com/article.asp?article_id=2810
The differences between these early programs and later customer
retention programs was that computerization allowed inexpensive direct
contact with the customer AND affiliate or co-marketing programs. The
airline industry had long known that it's passengers were likely to
spend money on rental cars and hotels -- now they had a way to use it
for strategic marketing advantage.
In May, 1981 American Airlines started with an asset -- a customer
database of 150,000 people from its Sabre reservation system -- and
found a way to use it for customer retention with its AAdvantage
program. The computer system was such a strong asset that Robert
Crandall, former chairman of American Airlines, once said that if
necessary he'd forfeit all of the airplanes -- if he could keep the AA
computer systems.
The history of AAdvantage is outlined here at frequentflier.com:
http://frequentflier.com/ffp-005.htm
There are many ways in which to measure the benefits of these
programs, including:
· customer retention or return rates. The costs of acquiring new
customers varies by industry but is always several times higher than
the cost of having a customer return. An Aberdeen Research analyst
recently indicated that a sale to a new customers costs 5 times as
much, but some companies estimated the cost of a new customer to be 10
times higher than existing customers.
· increases in spending per visit, per transaction, per customer.
· better tracking of customer habits so that as a supplier you know
what and when to buy.
· personalization -- allowing a company to provide a promotion to the
targeted people or to build brand awareness. For example, if an
airline dominates the Minneapolis hub, it might offer double miles
during the month to everyone except people living in Minnesota in
order to get the most value from its bonus offer.
· increased number of contacts. Catalog people learned early that if
they mailed more often, they would not just increase sales -- but
increase sales per catalog. Direct sales people would tell you that
you need be present when the purchase decision is made and having more
mailings, catalogs or web page contacts accomplishes the same thing.
· co-promotion for better visibility and positioning.
· ancillary revenues: credit card companies are an obvious example, as
transaction charges provide a small portion of revenues. Annual fees
and interest charges account for the majority of their income.
As measuring the benefits of a loyalty program, the company must also
ask some questions about the cost of the program:
· what's the customer's perception of the value? does it exceed your
costs?
Many research and consulting companies emphasize the staying on top of
customers attitudes:
http://www.greatbrook.com/customer_loyalty.htm
· what are breakage rates (unused benefits, which mean lower costs)?
· what are the costs of alternate promotions such as coupons, rebates,
advertising, promotional specials?
The first of the credit card loyalty programs is generally credited to
the Discover card, introduced in the mid-1970s. Discover was the
first to offer a cash rebate to its customers once they'd spent a
certain minimum level of about $1,000. Then, after the tremendously
successful AAdvantage program appeared (and the Discover card gained
market share), Visa, MasterCard and Diner's Club all responded with
loyalty programs in the early 1980s:
http://www.dinersclubnewsroom.com/anniversary.cfm
Finally, you'd asked if the metrics for profitability of the credit
card loyalty programs are clear?
Loyalty programs have become part of a new wave of software and
management referred to as Customer Relationship Management (CRM).
There are now many arguments over what loyalty programs really
accomplish and how they are being used. This article by Michael
Lowenstein, a director of Customer Retention Associates, critiques a
bank for seeking to increase the frequency of customer contacts,
rather than segmenting customers by profitability:
http://searchcrm.techtarget.com/originalContent/0,289142,sid11_gci772692,00.html
This article on retailer loyalty programs argues that when the entire
industry has a loyalty program, the result is simply an increase in
cost for everyone:
http://www.mcmillandoolittle.com/cutsLoyalty.PDF
And this study by Grahame Dowling and Mark Uncles (MIT Sloan) provides
some information on what can be expected in behavior as people
purchase products. They note that only about 10 percent of buyers
stay loyal to a SINGLE consumer product and a huge majority of
travelers belong to more than one frequent flyer program:
http://www.okpi.com/buzz/synopses/programs_work.html
It's safe to say that the metrics for profitability are hotly debated.
So hotly so that McKinsey & Co., the management consulting firm, has
an entire customer loyalty practice:
http://marketing.mckinsey.com/capabilities/customer.htm
Best regards,
Omnivorous-GA |
