Reward Programs: Are they Effective for Creating Engaged Customers?

Most Americans are members of at least one loyalty program, if not several. Whether they carry around a R.E.I. dividend, a key chain tab for their grocery store, or a card for their airline, Americans love to get a little something extra for their patronage—and loyalty programs claim to give it to them. The American love for loyalty programs is strong, even in the recession. As loyalty research firm COLLOQUY’s Rick Ferguson put it, “Despite the recession, more consumers across all demographic segments are participating in rewards programs than ever before.” In fact, COLLOQUY found a 25% increase in American loyalty program memberships since 2006. So, reward programs are popular, but are they effective from a business perspective?

The effectiveness of loyalty programs may be defined in several ways, but we’ll look specifically at how loyalty programs affect Customer Engagement. Engaged customers have a positive emotional connection to a brand, they are loyal, passionate advocates for a company. Engaged customers will go out of their way to do business with you. We focus on customer engagement because we have found that Customer Engagement is a predictor of overall business success. Companies with more engaged customers see higher profit margins, more loyal customers, and even happier employees. For us, then, the real question is how loyalty programs impact customer engagement.

From a customer engagement perspective, rewards programs are not automatically successful. Many companies hope their loyalty programs will increase sales, help gather customer data, and entice customers into trying new products. However, none of these outcomes guarantee higher customer engagement.

You can see the rest of the article at Creating Engaged Customers