What is a loyalty program?
Ask a roomful of merchants what loyalty is and you will most likely get as many answers as there are people. The challenge of implementing loyalty programs is that the broad nature of their definition can make implementation a nightmare.

The Difference between Loyalty and Promotional, or Reward, Program

Loyalty:			Promotional or Reward:
	The key element of a loyalty program is that customer information is gathered and used to encourage activity over a long relationship with the customer.			Promotional programs are designed to create an incentive for a specific activity. These are generally one-time campaigns.
	The impact of loyalty programs is long lasting. Even when loyalty programs are terminated, consumers may still feel loyal and may still base their actions on that loyalty.			No relationship is established with the consumer; no information is generated as part of the promotional program.

Merchants just beginning to implement loyalty can use the promotional program to kick-start their offering.

What Do You Collect From A Loyalty Program?
Recency: Has this customer visited your store in the recent past?

Frequency: How frequently has a customer come to a location over a given period?

Money: How much money has a customer spent on each visit (or on average)?

Profiles: Information needs to be collected to help understand a customer's preferences. It is futile to have a database full of information about customers if it is not used to serve them better.

Adding Value for the Cardholder: Consumers respond well to programs that have some combinations of the following.

Cash Value Rewards: What the customer has to pay in cash to acquire the reward.

Aspiration Value: Rewards with psychological appeal that exceed their cash value. This is an important value used in successful programs. A trip to Disney World, for instance, has greater psychological appeal than free pet food for a year, even though the two may have the same cash value.

Choice Of Redemption Options: Not only is choice important, preferably at different cash and aspiration levels, but also the ability of the customer to control or influence the process is important. Customers need to perceive that they are in control.

Relevance: Redemption must be usable with the context of the customer's day-to-day activity. Free long distance calls may have a known cash value; however, the incentive only applies to that customer segment that makes many long distance calls.

Convenience: The redemption process must be simple.


What Makes Loyalty Programs Effective?

	Making redemption of rewards easy
	Using information about customers to improve service. It is futile to have a database full of information about customers if it is not used to serve them better.
	Matching loyalty currency to the market. There is no point offering discounted pantyhose as an incentive when 60% of the customers are men.
	Standing out from the crowd. Companies need to differentiate their offers from those of their competitors.