Loyalty Programs: Benefits, Challenges, and the Case of Samsung

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Updated: Aug 14, 2023
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2023/08/14
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Introduction

Loyalty programs as an instrument of marketing cover a very broad area of description. So, I would like to start the introduction of this topic by explaining each key concepts step by step. To begin with, let’s first understand what loyalty actually means.

Loyalty Concept

Loyalty can be defined as “an identifiable package of benefits offered to customers who reward repeated purchases.” Loyalty can be viewed as a tool that helps us in avoiding prospective sales losses by building personal relations with the customers.

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The loyalty concept was considered by marketing academicians and practitioners as a precious instrument for extending valuable marketing strategy. In other words, “customer loyalty has been universally recognized as a valuable asset in competitive markets.” In recent years, brands and retailers have started building brand love as part of their retention strategy since loyal customers not only have a higher purchase frequency and lifetime value, but they also help in promoting the brand by referring it to their friends and relatives. We’re living in an exciting time for loyalty marketing. Businesses of all shapes and sizes have access to tools that can help them boost customer retention and keep customers engaged at all stages of the purchase process. But how exactly does a loyalty program do this for businesses? Let’s now understand what a loyalty program is and what it should look like.

Loyalty Programs

Since our focus is on a loyalty program, we will look at this concept in detail. Loyalty programs have been around for decades, if not for a century. The meaning and scope of loyalty program has evolved tremendously over the years. It is no longer restricted to traditional punching or buying cards that offer a point per dollar that only gives clients the chance to redeem for a discount later. Rewarding for purchase can be perceived as gimmicky – even if you’re a retailer. So when you’re working outside of retail, there really has to be something else to make the program worth engaging with. Hence, this calls for a change in the traditional loyalty program practices. What should an ideal loyalty program look like? A loyalty program should reward all things that add value to your business, as well as to customers.

An ideal loyalty program can make a huge difference in any business. All sorts of industries, from large airlines to small nail salons, use loyalty programs to give customers that little extra incentive to bring them back for more. Loyalty programs establish an emotional connection between the company and the customer, thus ensuring continuous engagement to create brand loyalty. Building and retaining customer loyalty is an important issue in this age of fast-moving information and access to diverse choices in such a competitive market. A good loyalty program typically ensures that a customer identifies herself/himself with the value the brand stands for and also makes sure that being a part of the program is a source of pride for the customer. Loyalty programs can be seen as long-term events in which consumers think of some type of investment that can later be redeemed for free merchandise, services, or discounts applied to a future purchase. To be precise, a loyalty program is a cost-effective way to retain existing customers, and this is very important for any business because keeping one customer costs 3-10 times less than acquiring a new one, depending on the industry you’re in.

Benefits and Problems with The Loyalty Programs

Loyalty programs come with various benefits to any business. But as we all know, everything that has benefits comes with some cost. There are also many problems associated with the smooth functioning of loyalty programs. Let’s first look at the benefits.

Benefits of Loyalty Programs

  • Encourage repeat purchases

The main benefit that a loyalty program can create is to retain customers by rewarding them for their repeat purchase behavior. In fact, the customer loyalty program is a tool to retain customers by giving them a solid motive to buy again from the company and feel pride in being associated with the company’s product. Customer retention strategy has a direct impact on a company’s profit as well as status, which is a well-established fact. A business with a 60% customer retention rate is losing 3-4 times as many customers as a business with an 80% retention rate. Keeping the old customer is always a better option than spending resources on acquiring new customers.

  • Separating profitable and unprofitable customers

Loyalty programs allow us to collect data on each customer who signs up, which can be further analyzed by giving information about what products they prefer, their spending habits, and other invaluable information that, in turn, provides various upselling and cross-selling opportunities. A well-designed loyalty program allows companies to segment customers and discover profitable and unprofitable customers based on this data giving insight to the company on what to focus more on depending upon the activities of profitable customers. It helps them in dropping off the customers who only buy the discounted lines and avoid the premium range almost on a regular basis. Loyalty programs are undoubtedly the most efficient way to retain the customers from whom the company generates the most profit.

  • Getting valuable insight and building better relationships with customers

A loyalty program offers a direct line to customers, making communication much easier. When the customers know how to reach you and feel comfortable doing so, this means there is an opening for the business to receive valuable feedback that can help the company improve. Companies can actually learn the most from negative feedback and look upon the changes to make so that customer satisfaction is retained. When a customer signs up for your loyalty program, the customer’s information is saved in the company’s database. This data enables us to determine customers’ behavior, buying practices, and preferences. A good loyalty program will allow us to improve our relationship with customers. Loyalty programs allow us to capture customers’ data which we can use to communicate with them in the future. This could be to notify them of special offers, exclusive sales, new product releases, send surveys, or wish them a happy birthday!

Problems with the Loyalty Programs:

No doubt, a loyalty program has enough benefits to cherish, but we should not forget to look at the other side of the page. A loyalty program does benefit the company and customers, but it has some major drawbacks. Let’s have a look at some of them.

  • Managing data can be time-consuming and costly 

In order to actually gain insight from customer data, you’ll likely need to spend a great deal of time analyzing the numbers. Not everyone can make sense of the data acquired; we need some experts to analyze the data to come up with the best solution needed. Keeping your customers engaged can be very challenging, especially in an overcrowded market where every day new products are launching. As with anything worth doing, an effective loyalty program requires a certain level of attention and regular maintenance.

  • Potential damage to your business’ finances

The biggest cost that the loyalty program comes with is in its monetary terms. Perhaps companies fall into the trap of implementing such a customer loyalty program of making offers so good that they aren’t turning a profit even with repeated purchases. If you give away rewards or discounts that are too large and are not increasing repeat purchases and customer spending, you are going to do some serious damage to your business’s bottom line.

  • Difficulty in finding loyal customers 

Many times, it is difficult to differentiate brand-loyal customers from repeat buyers. When consumers make frequent purchases with your business, it simply does not mean they are loyal to a product or service. They might be buying it because of the perks that you are offering. It’s very important to recognize loyal customers; otherwise, the company may be just wasting its resources with no gains in return.

Objective and Purpose of the Report

For this research, we consider brand loyalty with cell phones. In India, its generally noted that in the huge market of cell phones, the consumers of cell phones are looking for more than the product. They try to develop a relationship with cell phones, and no doubt there is a presence of a large number of brands in the cell phone. All things create an interest in studying brand loyalty with the consideration of cell phone brands. The objective of this research is to find some new brand loyalty measures and to analyze the major factors responsible for brand loyalty. The main purpose of this report is to understand what actually do we mean by ideal loyalty measures and how loyalty programs can be used effectively by the cell phone market in INDIA. We know that loyalty programs come with a cost. It alone cannot guarantee repeated customers. The program needs to be strategically planned and implemented to reap its best effect in the cell phone industry. This report will provide various insights as to how the ideal loyalty program should look like and what mistakes companies usually make while building loyalty programs. The research will also help us understand how loyalty programs can actually boost promotion and help in creating market strategy. It covers all the problems as well as benefits associated with the loyalty program.

Talking about the smartphone market in India.The usage of mobile services in India has entered nearly all economic and social sectors. India is one of the major contributors to the mobile phone market. The unbounded use of the mobile phone for its features has increased its market potential. Now, it’s not just about making or receiving a call but much more than that. In this digitalized world, mobile phones are gaining importance in every task. Like most other countries, India too is leading a growing mobile phone market.

The company on which I would be doing my research is Samsung. It is probably the No 1 company to trust when it comes to cell phones. Samsung’s one of the loyalty program name is Samsung Rewards. Samsung’s reward program operates on a four-scale-type scheme. This way encourages customers to make more payments so as to earn more points each month. Each month, you also have the opportunity to reach a bonus level that accelerates your points for that month and the month after. There are many such loyalty programs that Samsung offer. The other program is Samsung Smart Club Program. Program Benefits are valid exclusively on the purchase of Samsung product(s) from select product categories and from select Samsung Brand shops, Samsung Digital Plazas, and Samsung Smart Cafés only.

However, the Samsung brand name was put at stake when it released the NOTE 7 in August 2016, which had a manufacturing defect that caused the battery to overheat and, in some cases, explode. With the incidents regarding the explosion of the Samsung Note7, the brand faced a number of challenges regarding its brand reputation and consumer preferences and satisfaction. The company’s production was halted as the battery malfunction caused bodily harm and serious damage. The company issued a recall and offered $25 in bill credit to owners who exchanged their Galaxy Note 7 but also promised to fix the issues and relaunch the device. Samsung Note7 explosions have caused brand loyalty to have deteriorated because consumers have started to prefer other brands over Samsung.

According to the empirical analyses drawn by Gu (2017), public relations are affected by a number of upheavals in the brand. Consumers often have a number of expectations from a brand, and in the high-tech world, the high efficiency of the product is necessary. If it’s not being provided by the product, public relations get affected. With high tech comes high risks, and Samsung could not overlook the fact that its products have been regarded as exploding devices and harming people around the world. Moreover, the banning of the products by the airlines has caused the brand to its name, reputation, and prestige. In essence, it can be said that the explosions had Samsung a great deal of negative impact, due to which the market share has fallen and consumer buying behavior has been altered.

References:

  1. Stone, M., & Woodcock, N. (2007). Customer loyalty: towards an integrated conceptual framework. Journal of marketing management, 23(7-8), 591-611.
  2. Sheth, J. N., Newman, B. I., & Gross, B. L. (1991). Why we buy what we buy: A theory of consumption values. Journal of Business Research, 22(2), 159-170.
  3. Oliver, R. L. (1999). Whence consumer loyalty? Journal of marketing, 63(Special Issue), 33-44.
  4. Reichheld, F. F. (2003). The one number you need to grow. Harvard business review, 81(12), 46-55.
  5. Gupta, S., & Kim, H. (2010). Value from customer-focused relationship management: The role of social network ties. Journal of marketing, 74(3), 82-96.
  6. Reinartz, W., & Kumar, V. (2000). On the profitability of long-life customers in a noncontractual setting: An empirical investigation and implications for marketing. Journal of marketing, 64(4), 17-35.
  7. Reichheld, F. F., & Sasser Jr, W. E. (1990). Zero defections: Quality comes to services. Harvard business review, 68(5), 105-111.
  8. Kumar, V., & Reinartz, W. (2016). Creating enduring customer value. Journal of Marketing, 80(6), 36-68.
  9. Gu, B. (2017). The impacts of product recalls on brand loyalty: Evidence from the automotive industry. International Journal of Research in Marketing, 34(1), 224-243.
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Loyalty Programs: Benefits, Challenges, and the Case of Samsung. (2023, Aug 14). Retrieved from https://papersowl.com/examples/loyalty-programs-benefits-challenges-and-the-case-of-samsung/