Loyalty Marketing Definition

Loyalty marketing can be defined as the management process of identifying 'best customers' and utilising customer data and insight to create, retain and grow profitable relationships. Best customers are those who are the most commercially valuable – they bring you the most profit. Also important are those whose characteristics suggest that they have the potential to become your best customers.

Loyalty marketing aims to manage those profitable relationships by first defining profitable behaviour and consequently designing a range of marketing initiatives to maintain and influence profitable behaviour, thereby delivering incremental yield and maximising customer lifetime value.

The fundamental assumption in loyalty marketing is based on the principle that keeping existing customers is considerably less expensive than acquiring new ones. Reichheld and Sasser claimed that an improvement in customer retention of just 5% can cause an increase in profitability between 25% and 85% (in terms of net present value) depending upon the industry. Therefore increased 'customer loyalty' has a direct relationship with increased customer profitability.
The increased profitability associated with loyalty marketing via customer retention or customer loyalty occurs because: acquisition costs only occur at the beginning of a relationship, so the longer the relationship, the lower the amortised cost; account maintenance costs decline as a percentage of total costs.
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