Customer loyalty is an important part of any type of business. Loyal customers are more likely to come back and purchase more of your company’s goods or services and thus increase the profits of the company in the long-term. Customers who are given the chance to participate in loyalty programs are also known to be more likely to recommend goods and services to friends and family as they begin to feel loyal towards the company. However, gaining and maintaining customer loyalty can be a challenge especially depending on the type of business and the strategic goals that the company wants to achieve in the future.
One way that a company can attempt to gain the loyalty of their customers is through loyalty programs. The term loyalty program refers to the use of a special gift or incentive being used after a repeated action by the customer. An example of this would be if a cake shop decided to give their customers a free cake for every nine cakes that they had already purchased. This incentive encourages customers to spend their money at the store because there is a special reward for giving the company their business. Aside from this, there are two main reasons why companies should consider using this method of customer service to improve their customer loyalty. One of these reasons includes the fact that loyalty programs have a positive effect on the relationship quality between the customer and the business and that these types of programs make the customer feel entitled towards their reward from the company because of the business that the customer gives them.
A loyalty program “gives the customer a sense of superior status relative to the other, “ordinary” customers” (Steinhoff & Palmatier, 2014). This, in turn, makes the customer feel more valued and is more likely to bring them back to your business instead of someone else’s business the next time they want to purchase a good or service. The other reason is that there is the principle of reciprocity once the customer receives that reward from the company. They will feel like they need to reciprocate or give back to the company for the reward that they received. This is a principle that is taken from studies done on human behaviour and the factors that motivate human beings. This principle can be used to benefit companies through the loyalty programs, because as stated above, once the customer receives their rewards they will feel as though they have an obligation to pay the company back by giving their loyalty to that business. This can increase profits for the company as loyal customers will continually purchase their goods and services.
Overall, companies can greatly increase their long-term profits and sales if they implement customer service practices such as loyalty programs since loyal customers have been proven to repeatedly revisit the company and repurchase goods and services that are offered. Loyal customers are also more likely to recommend the business and thus companies are receiving positive benefits yet again. All of this is because customers not only begin to feel more special to the company because of the rewards they receive but because they also feel a need to reciprocate for those rewards as well. If a company is willing to invest in creating a loyalty program for their customers then they will directly see the positive effects that it could have on their business and customer relationships.
Ma, B., Li, X. and Zhang, L. (2018), “The effects of loyalty programs in services – a double-edged sword?”, Journal of Services Marketing, Vol. 32 No. 3, pp. 300-310. https://doi-org.library.sheridanc.on.ca/10.1108/JSM-06-2016-0227
Steinhoff, L., Palmatier, R.W. Understanding loyalty program effectiveness: managing target and bystander effects. J. of the Acad. Mark. Sci. 44, 88–107 (2016). https://doi-org.library.sheridanc.on.ca/10.1007/s11747-014-0405-6