Royalty Programs and Data Mining Term Paper

Open, View, and/or
Download this Document

Total Length: 1186 words ( 4 double-spaced pages)

Total Sources: 0

Page 1 of 4

Loyalty Programs

Popularity of loyalty programs is increasing, both in terms of the number of programs offered by merchants and in participation by customers. Yet, it seems that both groups remain ill informed of how the programs actually work and the true benefits and costs. This paper explores the reality of loyalty programs and concludes that they can be beneficial for all parties provided that they fully understand what the programs accomplish.

Do Loyalty Programs Work?

Research suggests that the demand-side success of loyalty programs is less than promised. It is difficult to change established patterns of repeat-purchase behavior and competition quickly develops counter responses that mitigate the impact of the program. However, it is possible to reap advantages from loyalty programs such as maintaining customer loyalty and brand share, improving accessibility and brand awareness, and offering incentives expected by customers.

Customers are apt to join the programs of the brands they buy if they desire rewards for their loyalty. However, the program must reinforce the value proposition of the brand instead of just building loyalty-program equity. Improved accessibility and brand awareness can result from obtaining more shelf space and promotions from retailers, taking advantage of opportunities to converse with customers and selling brand extensions to customers. Further, there is a huge me-too pressure to offer programs to consumers and, once a company introduces them, customers may react negatively if the programs are discontinued.

3.0 Benefits to Merchants and Consumers

Despite popular percption, increased sales from loyalty programs is unlikely. In October, 1999, the consulting firm McKinsey and Company conducted a study of consumers in sixteen product categories and found most loyalty programs did not increase sales. And, McKinsey and Company discovered that customers who enjoy benefits without increasing spending typically constitute up to fifty percent of all loyalty program membership.

Stuck Writing Your "Royalty Programs and Data Mining" Term Paper?

View All Our Example Royalty Programs and Data Mining Term Paper

Have A Custom Example Essay Written

So, one may wonder if loyalty programs actually offer any benefits to the merchant. The answer is yes, with the following possibilities:

Customer retention: Even if customers spend no more than they would have without a program, a loyalty program may keep them from doing business with a competitor.

Maintain spending habits: Loyalty progams can induce customers to keep their current level of spending.

Rewarding customers: Making customers feel appreciated can be a powerful tool for maintaining customer spending and loyalty.

Information gathering: One benefit of loyalty programs is finding out what your customers -- individually as well as collectively -- want and to selectively market products based on buying habits.

Data mining aids in the exploration and analysis of large volumes of information by using automatic means to discover meaningful patterns and rules. For example, direct-mail catalog company Fingerhut uses data mining to segment millions of U.S. customers into groups who exhibit similar purchasing characteristics and then tailors mailings of the 130 different catalogs that it sends to customers each year. Data mining's biggest contribution has been in cutting costs but allowing companies to focus promotions s on the customers most likely to buy.

All customers can benefit from loyalty programs through rewards, special treatment and/or specialty offers and discounts. As many as half of all members of loyalty programs are free riders, enjoying benefits without spending more at the store that provides them.

This group receives more and gives nothing in return.

4.0 Costs to Merchants and Consumers

Loyalty programs are very expensive for merchants. There are establishment costs such as advertising and promotional activity, enrollment costs, IT hardware, database creation and maintenance costs, servicing costs, management costs, editorial and production costs of loyalty magazines, the direct costs of rewards,….....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Royalty Programs And Data Mining" (2004, November 27) Retrieved June 6, 2026, from
https://www.aceyourpaper.com/essays/royalty-programs-data-mining-59974

Latest MLA Format (8th edition)

Copy Reference
"Royalty Programs And Data Mining" 27 November 2004. Web.6 June. 2026. <
https://www.aceyourpaper.com/essays/royalty-programs-data-mining-59974>

Latest Chicago Format (16th edition)

Copy Reference
"Royalty Programs And Data Mining", 27 November 2004, Accessed.6 June. 2026,
https://www.aceyourpaper.com/essays/royalty-programs-data-mining-59974
   

Open, View, and/or
Download this Document
order custom essay example