A second look at loyalty programs under the microscope

What could improve the performance of a business more than retaining its customers? Isn’t repeat business a good way to amortize often high customer acquisition costs over a greater purchasing volume? Don’t faithful customers who have learned to trust the brand tend to consume more? Because they are satisfied, don’t they have a greater propensity to recommend the brand?

These are mistaken assumptions, according to the experts. This is not to say that a solid base of regular customers is not a great asset. However, many companies err in making retention the ultimate objective, and focusing on minimizing the attrition rate. In the process, they lose sight of two important facts. First, loyalty isn’t necessarily synonymous with profitability, and second, the focus should be on lifetime customer value, that is, the present and future value of customers. In fact, all customers do not justify the same loyalty investments, and don’t have the same behavioral profiles, or even the same present and potential value.

– Carefully differentiate your retention strategy by customer profile.

– Design your loyalty program with profitability – not just retention – in mind.

– Learn how to guide some customers to the door.