Question

A primary reason for developing a frequency program is to encourage customers to be loyal to a business or brand. For each of the following products below, discuss the merits of a frequency program. What types of incentives would individuals need to join the frequency club and then participate in the program?

Local restaurant

Auto repair service

Printing service

Clothing retailer

Answer 1

Frequency or loyalty programs are highly popular in products or services where the consumption is frequent. E.g. a restaurant where customers can come again and again to have their favorite dish, a traveler who is regular in domestic or international travel, cab service etc. . For products where the purchase cycle is very long like cars, houses etc, the loyalty programs may not work.

For the mentioned products like local restaurant, auto repair service, printing service and clothing retailer, frequency programs are highly popular to retain customers.

In four words, if we have to summarize a frequency program, it is

Acquire-> Engage-> Monetize-> Retain

Benefits of frequency program

1.Acquiring new customers: Offers and promotions are great tools to acquire new customers because customers find that they will be better off buying the product because in future they may get discount. In anticipation for future discount, the customer ends up purchasing the product and the company gets a new user.

E.g. Restaurant is able to attract the new customers dining or ordering at home.

2. Engaging customers: Points based loyalty programs are very useful in creating a sense of achievement among the customers, and in turn would keep him/her engaged. The customer would also ensure positive word of mouth among his friends or colleagues in office. Because there is an engagement, the loyalty program provides an opportunity to the brand to have an emotional connect with the customer.

3.Monetization: To use the points accumulated, the customer will have an incentive to come back to the store and purchase the service or product. This would help in boosting the sales of the product. Some retailers or service providers run bonus discount scheme for a specific product they want to push for their business reasons.

4.Retention: As the customer is engaged throughout, this would help the company to retain this customers and because the customer is retained, he would keep on purchasing at regular cycles from the company.

Other notable benefits for a loyalty program are :

1. It helps to increase the overall average spending. Such programs often incentivize customers to stretch more and helps in increasing average revenue per user.
2. Data science: Because the company knows about the buying patterns of the user, they can make custom made loyalty programs to appeal to different types of users.

Types of incentives that would help lure the customers

1. Discounts or freebies: Because the customers have enrolled themselves in frequency programs, they can enjoy better discounts than that in the case of customers who don’t have enrolled. Because there is discount on repeat purchase, the customer is attracted towards purchasing again and again. This can be useful in case of restaurant, auto-repair, printing service and clothing retailer.

2. Improving the grade or level of service: Because the customer has accumulated a certain points, he shall be able to avail the higher level of service at the same price as earlier. E.g. for auto repair, services are usually there in form of low, mid and advanced levels. With the help of loyalty programs , a customer enrolled in low or mid level can be upgraded to mid or advanced level respectively.

3. Access to a special service or a product at discounted price: For clothing retailer, auto repair or printing service, there can be a service or product that is the most premium in their portfolio and only a privileged few can enjoy it due to high premium involved. For a customer engaged in low or moderate level purchases, the premium service or product is highly aspirational for him to avail. And to achieve to that level where he can avail that premium service/product within his reach, he would get enrolled in the royalty program and keep participating in it.

4.Contests: Contests give a great gamification benefit to the customers. Gamification help to provide a sense of achievement to customers, especially for those who lie in top two grids in Maslow’s hierarchy of needs i.e. esteem and self actualization stage. The contests also can help to give him a sense of competition among his peers.

5.Contribution to community programs: Some companies offer reward in terms of monetary or non monetary contribution for benefits of society. For example in India, on every purchase of ITC Classmate notebook, the company donates Rs 2/unit towards their education charity program. This attracts a certain segment of customers who hold a deep sense of empathy for others.