The article explores the following 1.What are Loyalty Programs ? 2.Types of Loyalty Programs 3.Does your Business need one 4.Stand Alone programs vs Coalition Loyalty .....and much more. RewardPort specializes in omni channel loyalty programs

1. Are
Loyalty
Programs
a necessity
for business?

2. Businesses operating in mature markets have a unique dilemma- they have to constantly look for
innovative ideas to stay close to customers and differentiate themselves from competitors. The
proverbial sword of low margins and fixed costs hangs over their head. And there’s also the
threat of the low-price players. When price cannot be a differentiator, companies have to look for
other differentiators.
One such advantage can be offered through customer loyalty programs. They don’t just
discourage existing customers from switching stores, but also give businesses an edge during a
price war. When done properly, loyalty programs can generate up to 20% of a company’s
profit. No wonder, US companies spend around $25 billion every year on loyalty programs.
How did Loyalty Programs Start?
A lot of research conducted around the 1970s indicated that suppliers who formed a better
relationship with customers tend to have ‘better customers’. Further research also indicated that
better customers bring better business. It slowly began as a marketing strategy for small and
medium businesses that used their database to monitor and manage customer behaviour.
Modern Day Loyalty Programs
There are plenty of loyalty programs, but most of these can be slotted into two different
categories; Standalone and Coalition.
Standalone: The most common loyalty membership today is the standalone program where
customers get rewarded for doing business with the company that offers the program. Points can
be redeemed only within the range of products offered by the program owner.
Coalition: More than one company participates in this program. Customers are rewarded for
doing business with all the participating companies. Loyalty points can be redeemed within all
the products offered by the participating companies.
How do they compare against each other?
There are advantages and disadvantages associated with both these programs. Benefits of the
coalition program include;
a) Helps attract new customers: Companies participating within the coalition program get to
share and thereby attract new customers. And that too at just a fraction of the cost normally
incurred on marketing and advertising.
b) Costs and risks are shared: Costs to set up and operate the program are shared between
participants. This also applies for risks if the program fails to take off.
c) Ideas and practices can be shared: As partners, businesses get to share their ideas and
practices through promotions. The organizing contractor often arranges meets to discuss
promotion strategies and ideas.

3. Disadvantages of the Coalition Program Include:
There’s a reason why coalition membership programs aren’t as popular as their counterpart. The
greatest disadvantage lies in the fact that they leave the customers confused about which brand to
choose.
a) Difficult for brands to maintain individuality: Although brands are being packaged
together, they’re also competing against each other. They have to struggle to maintain their
individuality.
b) Unclear information on customer database: The customer database is the most important
factor in deciding promotions and allotting budgets for the program. This database is
controlled by the coalition promoter who doesn’t disclose it to avoid misuse. But without
knowing and analyzing customer behavior, companies have to devise their own mechanism
to derive customer data.
c) Problems during redemption: In a typical coalition based loyalty program, different kinds
of brands may participate. Customers who’ve collected reward points cannot redeem them as
they wish. This is because the redemption value of different brands would be different, and it
would be low for high end brands.
Advantages of Standalone Programs:
If retaining customer loyalty is the main focus of a reward program, then standalone is the best.
a) Program can be identified with a single brand: Customers need not be confused about
choosing from multiple brands. They can identify the program with a single brand, thus
making brand promotion an easy task.
b) Exclusive access to customer database: Unlike coalition programs, companies choosing a
standalone program have exclusive access to customer database. This helps them analyze
their promotion strategies and even budget accordingly.
c) Consistency in strategizing and marketing: The program is designed exclusively for the
participating brand. The company has complete control over every aspect including the rules
and regulations related to the program. They even get to control communications related to
the program. This ensures consistency and reliability.
What do customers want?
The problem with any good customer strategy is that every company wants to copy it. Almost
every company wishes to or has already launched a program. Sadly, most of these fail miserably;
not because of a fault with the concept, but because it isn’t based on careful judgment. Every
loyalty program should include;
a) Rewards that customers can relate to: The reward program should offer instant rewards
and not expect people to wait for a long period until the points can be redeemed. Customers
are attracted to a program for rewards, but only temporarily. In the long run, what matters is
that the effort taken to maintain relations with the customer.

4. b) Never forget the ultimate aim, i.e. to sustain customer loyalty: Rewards are undoubtedly
the end result of every program. But they shouldn’t be the ultimate motivating factor. It is
about maintaining customer’s loyalty and preventing him/her from switching stores.
c) Program suited for different segments: The program should be customized for people in
the targeted category. It should identify their needs; study their purchasing behaviour, etc.
Common loyalty programs include offering reward points for air travel, fast food chains, etc.
Standalone programs promise all of this and much more.
- Javed Akkhtar
Author is Founder & CEO of RewardPort (www.rewardport.in) , India’s Leading Engagement &
Loyalty Marketing company