Types of Loyalty Program

Direct Marketing

Direct marketing can take many forms - catalogues, TV Shopping, Direct response TV, infomercials, direct mail, cold-calling, internet etc. Anytime you try to sell something directly to the end user rather than going through some third-party distribution arrangement you are doing direct marketing.  Direct does not necessarily imply a customer database, although there is usually some kind of transaction records.

Database Marketing

It can mean you have a list of customers and mail stuff to them, with /without doing any customer profiling.  This approach is often referred to as "direct marketing" - the blasting out of mass communications to everyone on a list.  In reality, it is nothing more than mass or broadcast communications using a personal media channel.

True database marketing creates a feedback loop where customer behavior is analyzed and taken into account when designing the next communication.  When no customization based on profiles is done, it's really mass marketing.  Any marketing approach taking advantage of customization is data-based marketing, so all the methods below would be included under the database marketing umbrella. 

Loyalty Program Marketing

Relationship marketing with a currency, a store of value that tries to keep the customer "locked up" with a company.  In well run loyalty programs, customer profiling is used extensively to promote to customers, except points are used instead of discounts as the incentive for activity.  Loyalty programs must keep in mind that:

The rewards are desirable to the specific customer base.  Generic loyalty programs almost always fail.  If you’re doing a magazine loyalty program and you offer subscriptions to interesting books instead of over-priced cameras for rewards, you’ll do better with the customers.

The program is kept fresh and exciting, with a constant variety of things to involve the customer with, including refreshing of the rewards catalog, point auctions, etc.

The marketing does not focus on ideas creating subsidy costs among best customers.  In the ideal world, you want to use points to generate activity from low value customers, and you don’t want your high value customers spending down their points to zero all the time.  Some marketers encourage the opposite and bankrupt their programs.

Permission Marketing

Relationship Marketing with a gentler hand on the communications issues.  It’s a superb idea, and concerns the protocol of communication between a business and their customers over the Life Cycle.  Permission marketing states when communicating with customers, you should be anticipated, be personal, and be relevant.  The customer’s definition of these three ideas would naturally change over time, so you have to listen to the customer and engage in dialogue.

This has the effect of upgrading the quality of your customer base, because in theory, only the people who really want something from you grant permission. 

CRM (Customer Relationship Management)

RM represents the business philosophy required to accomplish the 1-to-1 marketing vision. Unfortunately, many people have come to equate CRM, which is really a strategy, with the tools and software which allow a firm to execute the strategy.  Along those lines, CRM has been divided according to the functionality of software tools:

Analytical CRM - the use of data modeling and profiling to accomplish CRM goals

Collaborative CRM - the tools used to directly engage and interact with customers

Operational CRM - the "back end" systems which unify the business and deliver products.

Once again, in practice, few firms have the CRM idea working as well as they would like.  The problem is one of lacking experience in using customer data to run a business.  Many people had expectations they could just "automate" their marketing, but working with customer data requires experienced human input as well.  It's a bottoms up, not top down process.

Relationship Marketing

In relationship marketing, you listen to the data and try to hear what it’s telling you. Many database marketing types just use the database as a list and mail things to it; relationship marketing implies a deeper knowledge of the customer and some kind of give and take.  In relationship marketing, there is acknowledgement of a customer Life Cycle, and marketing is viewed as a process rather than a series of seemingly unconnected events.

The process is usually defined as a series of customer stages, and there are many different names given to these stages, depending on the marketer’s perspective and the type of business.  For example, working from the beginning of the relationship to the end of the relationship:

Interaction > Communication > Valuation > Termination

Awareness > Comparison > Transaction > Reinforcement > Advocacy

Suspect > Prospect > Customer > Partner > Advocate > Former Customer

During this process, you try to customize programs for individual customer groups and the stage of the process they are going through; as opposed to some forms of database marketing where everybody would get virtually the same promotions, with perhaps a change in offer.  The stage in customer Life Cycle determines the approach used in marketing.  A simple example of this would be sending new customers a "Welcome Kit."