Customer Loyalty Programs: Advantages & Disadvantages

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Customer Lifetime Value (CLV): Definition, Calculation & Uses

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
Your next lesson will play in 10 seconds
  • 0:05 Customer Loyalty Programs
  • 0:45 Appreciation and…
  • 1:09 Distinguishes from Competitors
  • 1:34 Nothing New
  • 2:22 Program Expense
  • 3:11 Lesson Summary
Add to Add to Add to

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Login or Sign up

Create an account to start this course today
Try it free for 5 days!
Create An Account

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Savannah Samoszuk

Savannah has over eight years of hotel management experience and has a master's degree in leadership.

Customer loyalty programs have become very popular over the last decade. This lesson will examine the advantages and disadvantages of customer loyalty programs.

Customer Loyalty Programs

Al's Grocery just down the road has started a loyalty program for their customers. There are other groceries in the area, and Al wants to set his store apart and draw in repeat customers. It's free to sign up and for every $100 a customer spends they receive ten points. Once they reach 100 points, they get ten dollars off their bill. Will this help or hurt Al's business in the long run?

Well, a customer loyalty program is a way for businesses to reward their top customers for their loyalty through points, discounts, and promotions. Customer loyalty programs can provide many advantages to a business but there can also be some disadvantages.

Appreciation and Repeat Business

One benefit of having a customer loyalty program is that the customer feels appreciated and knows they will be rewarded for repeat business. For example, by starting a loyalty program, Al's Grocery rewards his customers for continuing to buy from his store. This makes his customers feel valued and they keep returning to earn more points. They also tell their friends about the points they're earning, which may lead to increased profits.

Distinguishes from Competitors

Another benefit of having a customer loyalty program is that it can help to distinguish a business from its competitors. Customers are presented with so many choices for just one product. A customer loyalty program can help a business stand out from the rest. When Al started his loyalty program, the grocer across the street didn't have one. His customers chose Al's because they could earn points, whereas the competition had no such incentive.

Nothing New

While customer loyalty programs can provide many benefits to businesses there are some drawbacks to keep in mind as well. One disadvantage is that these programs are not a new concept anymore. Most businesses have jumped on the customer loyalty program bandwagon, creating thousands of programs nationwide. Customers can be overwhelmed (most customers are members of several) so it's harder for businesses to create excitement for their program.

To unlock this lesson you must be a Study.com Member.
Create your account

Register for a free trial

Are you a student or a teacher?
I am a teacher

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back

Earning College Credit

Did you know… We have over 95 college courses that prepare you to earn credit by exam that is accepted by over 2,000 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it free for 5 days!
Create An Account