Loyalty Programs are Pass

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Customer Loyalty programs have been around for more than a century and marketing managers have used them very effectively for rewarding loyal customer behavior, especially repeat purchase. According to Gartner, U.S. companies spend more than $1.2 billion per year on customer loyalty programs. It is also estimated that more than 75% of consumers today have at least one loyalty card and number of people with two or more is estimated to be one-third of the shopping population (for more, see The Lowdown on Customer Loyalty Programs: Which Are the Most Effective and Why: Knowledge@Wharton).

But given recent growth in Social Networking on the internet and our ability to precisely track outbound Word of Mouth (WOM) and its impact on customer behavior, it is time for business to look beyond Loyalty Programs that reward repurchase and consider having Customer Advocacy Program instead. In a recent research study titled Effects of Word-of-Mouth Versus Traditional Marketing: Findings from an Internet Social Networking Site, findings of which were published in Journal of Marketing (September 2009), it was found that “Word of Mouth (WOM) referrals have a strong impact on new customer acquisition. The long-term elasticity for WOM referrals is approximately 2.5 times higher than the average advertising elasticity reported in the literature. Part of the reason for the high long-term effect of WOM relative to traditional marketing is that it has a much longer carryover period.”

Given the impact of Word of Mouth (WOM) on purchase decisions and our ability to track outbound WOM on Social Networking sites, Marketing Managers should design programs to track and reward Customer Advocacy behaviors such as WOM on Social Networking sites. This will not only help marketing managers in promoting their products or brands on Social Media channels, but will also help in building trust and loyalty among target audience.

What do you think? Do you agree that Loyalty Programs are Passé and companies need to have Customer Advocacy Programs instead? Please do share your thoughts:

Republished with author's permission from original post.

Harish Kotadia, Ph.D.
Dr. Harish Kotadia has more than twelve years' work experience as a hands-on CRM Program and Project Manager implementing CRM and Analytics solutions for Fortune 500 clients in the US. He also has about five years' work experience as a Research Executive in Marketing Research and Consulting industry working for leading MR organizations. Dr. Harish currently lives in Dallas, Texas, USA and works as a Practice Leader, Data Analytics and Big Data at a US based Global Consulting Company. Views and opinion expressed in this blog are his own.

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