Ask The CRM Expert: Questions & Answers

Creating customer loyalty reward programs that encourage future buying

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Is it possible to create a customer loyalty program that will reward customers based on their future value instead of their current value?
We may have to dissect your premise here, first. By our definition, a customer's current value is best captured in terms of his or her "lifetime value" -- which is the net present value of the future stream of profit attributable to that customer.

Clearly, by this definition, a customer's "current value" is based on future profit, right? But a customer's "future value" is really the customer's lifetime value measured sometime in the future.

From the nature of your question, we doubt this is what you were thinking, but it's still worth pointing out that any marketing program designed to increase customer lifetime value (by increasing the customer's loyalty, for instance, cross-sales, or likelihood to recommend others) will be highly beneficial to a company. But most loyalty programs are not that well thought out, and we can count on the fingers of one hand the number of companies that have begun tracking changes in customer lifetime value as a tool for assessing their marketing programs. You can read all about this in our book Return on Customer: Creating Maximum Value From your Scarcest Resource, written in 2005.

It's more likely that your question has to do with whether or not you cancreate a customer loyalty program that encourages customers to buy more in the future, rather than simply rewarding them for what they just bought. This is a very common problem that afflicts many loyalty programs.

You need to use your loyalty program to reward the kinds of behaviors that most likely indicate future buying. For instance:

  • A credit card company will find that if a husband and wife are both active users of the same credit card account, the likelihood that they will leave the franchise is greatly reduced, when compared to the likelihood that either one of them would leave if they had the same account but their spouse wasn't on it. So, if you have a married couple with only one half of the couple subscribed to your credit card, use your loyalty program to provide a handsome reward for signing the other one up and getting them to activate.

  • A retail store will probably find that subscribers to the company's email newsletter will be more likely to come in to the store to buy things in the future, so use your loyalty program to reward subscribing to the email newsletter.

  • A car dealer knows that someone who recommends the dealership to another customer is likely to be more loyal himself, and the person referred is also likely to be more valuable. So use your loyalty program to reward referrals.

    Hear more in Creating Customer Value, a SearchCRM.com monthly podcast series with Peppers and Rogers.