Topics and Objectives:

Today we will focus on customer loyalty and the widespread use of loyalty programs.  There is a wide variety of types of loyalty programs which have different terms (some are free to join, others customers pay to join) and rewards. Recently there is growing concern among marketers that many loyalty programs are not yielding a positive return. We will discuss two cases which address loyalty programs in very different contexts.

Required Readings:

The Mismanagement of Customer Loyalty, Harvard Business Review, 2002

An article which raises questions about the value of customer loyalty. Specifically - customer loyalty should not be confused with customer profitability.

The Dual Nature of BTB Customers, DMNews, Feb. 2004

A short article emphasizing that the best loyalty programs combine rewards (the rational component) with recognition (the emotional component).

Your Loyalty Program is Betraying You, Harvard Business Review, 2003. 

A great article full of specific suggestions of what does and doesn't work for customer loyalty programs.

Get Me Out of This Line!, Newsweek, Nov. 2995

A short article on paid loyalty programs.

Diamonds in the Data Mine, Harvard Business Review, 2002. 

A great story chronicling Harrah's successful use of customer data and their Total Reward Program to develop and cultivate their customers.

The Dark Side of Customer Analytics, Harvard Business Review, 2007.

A recent HRB article takes a creepy look at what might be done with customer data.

Preparation Questions (done in groups):

• Identify and critically evaluate three customer loyalty programs with which you are familiar.  What are the benefits and costs - for both the firm/organization and the customers? What do you think is the impact of these programs on customers' attitudinal loyalty (i.e. do customers feel more loyal/connected to the business?) and behavioral loyalty (i.e. do customers act more loyal?)
• Choose a business of your choice and design a loyalty program for it.  Describe the incentives and the costs. How are points awarded and rewards earned? Assuming the program was implemented, how would you assess the program's success?

Additional Readings:

Two excellent and highly readable books on customer loyalty are:

• Loyalty Myths, Keiningham, Vavra, Aksoy and Wallard, Wiley & Sons, 2005.
• Customer Loyalty: How to Earn it, How to Keep It. Jill Griffin, Jossey-Bass, 2002

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