Keeping the Faith

Although consumers retrenched in their buying behaviors in 2002, they began to spend more freely in 2003, and loyalty marketing revived slightly in response. Spending in these programs (tracked in the Industry Trends Report for the first time this year) increased by 1.5% in 2003, up to $1.9 billion in the U.S. market.

Loyalty programs first grew in the 1980s in the travel industry. American Airlines Aadvantages Miles was one of the first “reward” programs, soon copied by other airlines and hotel chains. According to Web Flyer, there are now 89 million members of airline frequent flyer programs in the world; 74 million of them are in the U.S.

Nowadays, the tactic is ubiquitous across almost all product categories, and it has been co-opted by most retailers, as well. The Food Marketing Institute reports that 76% of all U.S. grocery retailers with 50 or more stores offer a frequent-shopper program. In the U.S., 53% of all grocery customers are enrolled in such plans, according to a recent McKinsey study. Even online auction powerhouse eBay (a “virtual” retailer) offers its members a loyalty benefit through its Anything Points program.

The eBay program was launched in 2002 in concert with several financial services firms, which have become among the biggest loyalty players in their own right. According to CardWeb.com, the payment card information network, 40% of all Visa and MasterCard issuers now operate a rewards program tied to their credit card offerings. And Frequency Marketing, a loyalty firm based in Milford, OH, says that 20% of all debit card holders in the U.S. are also tied to a rewards program.

Even financial veterans are finding ways to develop fresh offerings: American Express, which was among the first card companies with a loyalty program, has instituted an entire new line of cards built around its Membership Rewards program.

According to Colloquy, 45% of all U.S. and Canadian small-business owners below to a loyalty program sponsored by one of their suppliers. Of these, 60% actually belong to more than one program.

But loyalty marketing has matured. Between 1996 and 2000, membership was more than 30% per year. It reached 973 million by the end of 2000 — more than four programs per adult. Membership growth slowed to 8% in 2001, and then 4% by 2002. (Markets outside the U.S., particularly Canada, Australia and the U.K., are showing a similar slowing.) Typically, only 25% of members redeem their “currency” within 12 months.

While several new business-to-business loyalty programs were launched in the past year by industrial supplies, telecom and tech products sectors, loyalty marketers are becoming more alert to the sameness of their programs. Practioners have become more savvy in how they design member rewards, including adding more interactive Web-based features. To the imaginative, who can lift loyalty lethargy, will go the prize.

SNAPSHOT 2003

• Total spending: $1.9 billion (up 1.5% for year)
• 18.8% of those surveyed say it’s a top tactic for their brand
• Membership growth slowed to 4% from a mid-1990s average of 30% per annum