A loyalty scheme, if properly constructed, does provide the vendor with a continued point of contact with the customer.
This ongoing recognition of the relationship is a continual reminder to the customer of why they purchased in the first place and why they continue to do so.
It reminds them of the level of satisfaction which they experienced and will continue to experience.
If we apply the principles of switching cost and satisficing to this relationship, we can see that from the customer’s side, there is little incentive to change vendors.
A loyalty scheme provides the vendor with a platform to connect to the customer on a continual basis. It can be used to collect additional details on the customer so that other promotions can be offered. It can be used to invite customers to participate in events which enhance the vendor value to the customer as well as provide direct benefits to the customer.
Basically, the loyalty scheme should be used by the vendor to enhance the relationship between vendor and customer in such a manner that the customer sees positive benefit in the ongoing patronage.
The research on this activity does tend to suggest that it has little impact on market share.
Many consumers belong to competing loyalty schemes and are not really expressing loyalty at all. For most vendors, it is just another marketing cost which has to be incurred rather than something which gives them a competitive advantage.
However, where the rewards are linked directly to the product or service being purchased and can only be used with the same vendor, the relationship is direct and the reward for loyalty direct. In the end, the benefit to the vendor is the ability to continually engage with the customer.
Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia. A series of free eBooks for entrepreneurs and angel and VC investors can be found at his site here.
