It’s a rare business owner or manager who can say, “We have as much revenue as we can handle, and frankly, profitability is better than we’d ever hoped for.” Most executives are faced with the daily struggle to increase turnover and bring more money to the bottom line. ‘Customer Loyalty Programs’, familiar to most executives in the form of frequent flier miles, have become ubiquitous. Companies, small and large, offer a myriad of loyalty reward programs but not all of them are thoughtfully designed or effective. This brief review describes when loyalty programs work well, the features of the best programs and the various types of program that can be adopted.

The Rationale for Customer Loyalty Programs Businesses grow by either customer acquisition or by getting more business from their existing customers. Customer acquisition is invariably expensive. For every successful promotional activity (spending money and gaining a new customer), there is a vast amount of wasted promotion. Attendance at a business exposition may involve hundreds of hours of expensive staff time to yield a few dozen good prospects of whom a mere handful can be converted into profitable customers. Firms that search for new customers by unsolicited catalog mailings are often delighted if the response rate is any more than just 1%. That is, 99% of the costs of printing and mailing are a dead loss.

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