Loyalty Programs: Do They Work?

Customer Loyalty

Loyalty programs have become a routine part of consumers’ purchasing behavior and companies are becoming increasingly innovative in their strategies to ensure customers remain devoted to them. There is no definite answer to the question “how much more does it cost a business to gain a new customer rather than retain an existing one?” Some estimate the costs to be between 4 and 10 times more to acquire a new customer than preserve a current one, but in some industries, that figure can jump significantly higher. All we can say is that customer retention is hugely important and if not done correctly businesses will likely require a significant increase in their marketing budget.

Although the roots of loyalty programs can be traced back as far as the late 18th century, it was not until the early 1980s that we saw the inception of what we recognize today as a fully fledged loyalty program. That program was what we know today as the frequent-flyer scheme, which continues today with Alaska Airlines Mileage Plan and JetBlue TrueBlue considered the best current US carriers. Nowadays loyalty programs come in a range of guises and there are numerous ways customers can use their decision-making power to gain value in a range of industries.


This is the most conventional loyalty program methodology. Recurrent customers strive toward a certain number of points which they redeem to receive some type of reward. The reward can vary from a discount to a unique customer experience.

Done right, these programs can look like the BitCasino VIP Club where clients play games like roulette, slots or blackjack regularly to edge closer and closer to qualifying for VIP prizes such as a Bose home entertainment system or an Apple Macbook Pro. Players also get access to a personal VIP Hostess who organizes custom-designed packages according to the customer’s preferences.

Done wrong, these schemes take the form of what customers have come to recognize as increasingly valueless coffee store cards. These used to be a fairly simple system of stamps on a card that resulted in a free coffee after a specified number of stamps had been collected. These days the big coffee houses use sophisticated cards that are a rich source of consumer data for the companies, yet the value they offer has significantly decreased from the old “buy 10 get 1 free” stamp system.

The points system can also be found in use at all major supermarkets and airlines, and the value they offer can be substantial. However, it is worth considering that customers will often now use a comparison site such as MySupermarket.com or WanderBat.com and could produce an act of disloyalty in order to see what deals are proposed in order to lure them back.

Loyalty cards” (CC BY 2.0) by illustir

Join the VIP

This approach to customer loyalty invites customers to make a one-time or annual payment that entitles them to circumvent purchasing obstacles that non-members must negotiate. By distinguishing the issues that may cause customers to leave, businesses are able to develop a fee system that benefits both the customer and the company.

This system works best for businesses that prosper through frequent purchases and Amazon Prime represents a perfect case study in how this program operates. For $99 Amazon Prime members get free two-day shipping on millions of items as well as music, video and photo storage benefits. With Amazon Prime and any other paid-for system, customers are likely to analyze their shopping habits and projected expenditure and will need to find value in joining before committing to a payment for the program. These types of programs generally only make sense to customers that are already loyal to the business and are then able to pay the nominal fee to gain savings.