Loyalty Programs Evolve

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Loyalty Programs Evolve

In 1896, Sperry & Hutchinson began selling S&H Green Stamps to retailers as a way of enticing customers to come back to the same store. The retailers gave the stamps away with purchases, the customers collected them in booklets, and when the customers had enough stamps, they could exchange them for products listed in a catalog or go to a redemption center. S&H made money selling the stamps, and retailers agreed to pay for them, because the program generated customer loyalty.

It was tremendously successful. About 80 percent of American households collected the stamps, which were printed in numbers that dwarfed the output of the U.S. Postal Service. S&H had revenues of $825 million a year during the 1960s, and their success predictably resulted in a stampede of imitators, such as Top Value, Big Bonus, Eagle, and King Korn, just to name a few. At the height of the Green Stamp craze, a school in Erie, Pennsylvania, saved up 5.4 million stamps to buy a pair of gorillas for the municipal zoo.

During the recession of the 1970s, companies such as S&H gradually declined in popularity, and the days of developing customer loyalty by using stamps came to an end. But at about the same time, the airlines were noticing a fundamental problem: To the customer, all airline seats were pretty much all alike, and the food was uniformly bad. How could they differentiate themselves?

In the 1980s, a few clever executives came up with a good idea: Why not let passengers collect miles instead of stamps? Every time they flew, customers accumulated a certain number of miles. Once they’d collected enough miles, they could redeem them for a free flight in exchange for their loyalty.

One of the key differences between the old Green Stamp model and the new loyalty programs instituted by the airlines was information. Anyone could collect Green Stamps anonymously, then go to a redemption center and get a coffee maker or some other item — all without giving up so much as a name and address.

Frequent flyer programs, for the first time, required customers to register and provide personal data. This gave the company a point of contact and a way to have an ongoing dialogue with the customer that could help cement that relationship with additional offerings. In this way, a new kind of customer loyalty marketing was born.

Of course, no sooner had one airline instituted its frequent flyer program than all the others did the same. Even so, if you could get the customer to join your program, he’d stick with you. Soon, retailers began imitating this trend, instituting frequent-shopper programs that rewarded customers for repeat business...

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