A program can meet these objectives in several ways-for instance, by offering rewards (points, say, or frequent-flier miles) divisible enough to provide many redemption opportunities but not so divisible that they fail to lock in customers.Ĭompanies striving to generate customer loyalty should avoid five common mistakes: Don’t create a new commodity, which can result in price wars and other tit-for-tat competitive moves don’t cater to the disloyal by making rewards easy for just anyone to reap don’t reward purchasing volume over profitability don’t give away the store and, finally, don’t promise what can’t be delivered.Ĭompanies of all kinds are killing off their customer loyalty programs. It can keep customers from defecting, induce them to consolidate certain purchases with one seller (in other words, win a greater share of wallet), prompt customers to make additional purchases, yield insight into their behavior and preferences, and turn a profit. To begin with, it’s important to know exactly what a loyalty program can do. Together, their findings constitute a tool kit for designing something rare indeed: a program that won’t do you wrong. In their research, the authors have discovered patterns in what the successful loyalty programs get right and in how the others fail. Additionally, companies have to sort out the puzzles of consumer psychology, which can result, for example, in two rewards of equal economic value inspiring very different levels of purchasing. The biggest challenges include clarifying business goals, engineering the reward structure, and creating incentives powerful enough to change buying behavior but not so generous that they erode margins. What is so hard about making a simple loyalty program work? How can that be? These days, everyone knows that an old customer retained is worth more than a new customer won. Even as loyalty programs are launched left and right, many are being scuttled.

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