“The best marketing strategy and the highest marketing budget in the world cannot win back a disappointed consumer. Long-term success is based on product quality and repurchase rate.”
- Dietrich Mateschitz, co-founder of Red Bull

Customer loyalty measures the extent to which customers consistently repurchase products from the same business. Loyal customers also choose the goods and services of the business over its competitors. A common way that businesses compete is through the use of customer loyalty programmes. These are marketing strategies designed to retain customers by using a rewards programme that give loyal customers direct benefits, such as reward points that can be redeemed for purchases at discounted prices. An example is the frequent flyer customer loyalty programmes used in the commercial airline industry. Other rewards or benefits may include free merchandise, coupons, or priority access to new product launches.

Strong customer loyalty exists when customers are committed to a certain business and make repeat purchases time and time again. Marketing strategies designed to cultivate loyal customers through the use of customer loyalty programmes can give organizations a competitive advantage. As reported in the Harvard Business Review, "Succeeding with current customers goes a long way towards earning their next purchase". Whilst such programmes cost money, they can reap multiple benefits in the long run. By contrast, if a customer walks away and switches to a rival brand, their business could be lost forever.

However, customer loyalty programmes are more than just about offering discounts or rewards to customers. Management information systems (MIS) are being increasingly used by businesses to gather and process more data about their customers. This helps these businesses to create more appealing customer loyalty programmes in order to attract prospective customers as well as to retain existing ones. Businesses use the purchase history and customer-provided data (such as their shopping habits) in order to improve their marketing and to create timely and relevant offers to their customers. The rewards programme can also help a business to increase its customer base.

 Advantages of customer loyalty programmes

• Customer retention - Customer loyalty programmes reward customers for repeat purchases, so help to improve customer retention (the opposite of which is referred to as brand switching). Customer loyalty programmes are used to improve customer value, engagement, and experience. Essentially, customer retention is relatively cheap, whilst customer acquisition is expensive.

• More spending - Loyal customers are likely to spend more money, thereby generating higher sales revenue for the business. This is partly due to the rewards programme that entices customers to spend more. Research by Accenture, the multinational information technology services and consulting company, has found that members of customer loyalty programmes typically spend up to 18% more than other customers. Furthermore, it is generally easier to sell new products to existing customers

• More customer referrals - Word of mouth marketing can be extremely powerful. If customers enjoy the benefits of a customer loyalty programme, they are more likely to convince their family and friends to also join. For example, Dropbox offers additional free cloud storage space to users who refer new customers to the product. Furthermore, happy customers are more likely to write positive reviews on social media platforms, which further helps to promote and reinforce the brand or product. Hence, such programmes can help to broaden the customer base.

• Cost efficiency - It can be significantly cheaper to retain happy customers (using customer loyalty programmes to reward devoted customers) than search for new customers.

• Revenue stream - Some customer loyalty programmes charge upfront membership fees, which provides the business with an important source of income. For example, Amazon Prime charges a monthly fee which allows subscribers to make frequent and repeat purchases without having to worry about additional shipping (delivery) costs. Members also get priority dispatch of their purchased products.

• Customer-generated content - Customer loyalty programmes also involve the collection of an immense amount of data, such as the frequency and purchasing habits of the customer. This helps businesses to promote highly relevant goods and services that meet the needs of their customers.

• Improved customer engagement - It is far easier for a business to connect with loyal customers and to engage them with direct marketing. Customers are more receptive to receiving emails, social media adverts, and other marketing content from the brands that they are loyal to. Customer loyalty programmes enhance customer engagement (such as VIP product launch events) and help to strengthen the bond between the firm's brands and its customers.

• Higher profitability - Ultimately, developing reward schemes that generate customer loyalty is generally better for the business. This is because the combined benefits outlined above help the business to grow and to keep its profits high.

 Disadvantages of customer loyalty programmes

• Higher costs - Businesses may need to be wary of the costs of giving away free products and other extras or rewards to customers. Essentially, customer loyalty programmes cost money to plan, implement, and review. Furthermore, the business needs to spend time and resources to collect enough data to get a reasonably reliable idea about customer in order to develop loyalty programmes or reward schemes. Ultimately, the higher costs are likely to lead to higher prices being charged for the firm's goods and services.

• Time - Customer loyalty can take a significant amount of time to develop and nurture. It takes time to carefully plan and implement effective customer loyalty programmes. It also takes time to develop and refine customer loyalty programmes.

• Competition - Whilst offering customer loyalty programmes can help a business to get more customers, it is highly likely that competitors will also offer their own schemes that reward devoted customers. In general, customer loyalty diminishes as competition increases. To keep the brand or product relevant and desirable in the minds of the buyers, the business must provide authentic value to its customers in order to keep them coming back.

• Excess expenditure - Customer loyalty programmes can encourage customers to overspend and even raise the level of consumer debt (if they use credit card payments or loans to make their purchases. This raises ethical issues about businesses actively promoting the use of customer reward programmes.

The use of management information systems (MIS), such as data analytics and big data, enables a business to better understand its customers in terms of their spending habits, sales patterns and trends, and customer preferences. The data and information gathered from MIS are important to develop customer loyalty and to broaden its customer base.