Customer loyalty programs were first implemented on a wide scale basis by S&H Green Stamps in the 1930's. Consumer purchases were rewarded with stamps which could be redeemed for products. In the decades since, companies of all sizes have sought to replicate the success of the Green Stamps project. By creating compelling promotional incentives, businesses can trigger a response within their customer base.

There is promotional risk involved. Potential cost overruns, incentives which fail to trigger the intended response, and poor audience targeting threaten to impede the success of any customer loyalty program. But, such risks can be managed. If designed and executed well, promotional incentives can improve customer goodwill and loyalty while introducing a company's products to an expanding base.

Link the Promotional Incentive to the Product

Companies launching a customer loyalty program should create a promotional incentive that is related to their main product line. For example, coffee shops often give customers a "buy 10, get 1 free" card that can be used for a free cup of coffee. In this case, the consumer intuitively understands the connection between the incentive and the main product.

To contrast, let's suppose the coffee shop creates a customer loyalty program that offers a free 30-minute tanning session with the purchase of 10 drinks. The connection between the promotional incentive and the main product is severed. It creates a disconnect in the mind of the customer. As a result, it may fail to generate the anticipated level of consumer response.

Inject Perceived Value into Customer Loyalty Programs

One of the interesting psychological effects of a customer loyalty program is the tendency for consumers to value the promotional incentive outside the bounds of monetary value. To illustrate, let's return to our coffee shop example. In the case of a free cup of coffee, it is reasonable to assume the incentive has a monetary value of $2. However, a $2 rebate offered after 10 purchases would be unlikely to generate an increase in business. Customers are more inclined to consider the "value" of the free coffee based upon the experience they anticipate while enjoying it.

This works to a company's advantage. Customer loyalty programs can be designed to deliver a high perceived value to consumers while yielding a respectable ROI for the business.

A Customer Loyalty Program Is an Investment

Depending upon the type of promotional incentive offered, its path of introduction to the target audience, and the manner in which it is delivered, results can require time to materialize. It may be unreasonable to expect a customer loyalty program to yield an immediate ROI.

That should not dissuade businesses from exploring how such a program can be integrated within their current marketing strategy. The fact is, a customer loyalty program is an investment. It can be crafted to deliver high perceived value to consumers while generating a boost in sales and goodwill over the long run. For companies that take advantage of it, the investment can yield dividends for years.