Loyalty programs are a win/win. It costs a lot less to keep a customer than to proselytize one from a competitor. And loyal customers market for you. But a new study out of Ryerson University in Toronto suggests that loyalty programs may not be so profitable for some brands and that some companies may be better off not offering this type of customer incentive.
The study by Saeed Zolfaghari, professor and director of the university’s industrial engineering program, and PhD candidate Amir Gandomi also shows that marketers who do loyalty programs don’t have much research to support its virtues. Also, they developed a mathematical model that measures the programs’ effectiveness, and what they found was that, really, if you have loyal customers already, you don’t need to spend the money to keep them that way.
“Loyalty programs entice people to become, and remain, customers,” says Zolfaghari. “Our model demonstrates that if average customer satisfaction increases over time, there is less incentive for a company to offer a loyalty program. Essentially, your customers are already happy with you.”
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