Loyalty Programs

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I work for Hampton Inn and we’re part of Hilton’s loyalty program Hilton HHonors. It got me wondering the purpose of loyalty programs (beyond a pull for customers) and their effectiveness. I have a SuperCuts card that every time I get my haircut they stamp the card, and the eigth haircut I get free. That eighth time definitely feels good being gratis, but if you take the cost of a $14.95 haircut and mulitiply it by 7, then divide by 8, you’ll see that the average profit SuperCuts gets per haircut after the eighth is just $1.87 less. It’s probably not huge loss of profit for them.

But there is another reason businesses start loyalty programs. In 2003, 75 percent of consumers were part of some program. There are all sorts but they were created for one main reason: it’s a cheap way to track customer habits. Frequent flier programs were a way to find out the best and most populated routes. As for attracting and keeping more customers, the data shows not much success.

CIO Insight’s 2003 article expands on loyalty program. wiseGEEK is a great resource for answers to common questions. Its article on loyalty programs says the same thing.

ClickZ says that these programs were popular a decade or two ago but now point systems like with hotels and airlines have become a cost of doing business. With practically every airline or hotel having a frequent customer program the “playing field is leveled,” and doesn’t seem to make much of a difference. Still, not offering a point program (called a ‘token economy’) is bad for the company.

“As point systems become a commodity (because everyone has one), companies must leverage the one thing that can’t be duplicated about their company: brand and customer service.” – Jack Aaronson, ClickZ

Because every place has loyalty programs, companies have to revert to unique brand experience to have real loyalty. That, says Aaronson, is what will prevail. Read more…

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