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The Price of Loyalty
Do customer loyalty programs pay off? Are retailers who reward customers with rebates, discounts, or other perks rewarded in turn with higher sales and levels of customer retention? Often, yes. But as these programs proliferate, many retailers are finding that they are expensive to operate, hard to change, and vulnerable to challengers. McKinsey research in several retail sectors in the United States and the United Kingdom reveals four traps that can undermine loyalty programs and suggests ways to strengthen their value propositions, to change customer behavior, and to gather better market intelligence.
The take-away: To reach beyond people who are already loyal customers, a program must be easy to join and use. Its benefits must be well communicated to customers and staff alike. And it must let customers earn their rewards quickly, often through partnerships with other companies.
Articles provided by The McKinsey Quarterly
© 1992-2003 McKinsey & Company, Inc
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