History of Customer Loyalty

A brief history of modern Customer Loyalty programs and what's next.

The Origin of Customer Loyalty

The first Customer Loyalty program dates back to the 1790s when customers were given copper tokens that could be exchanged for future purchases. The tokens were used to track purchases and reward customers for their loyalty.

These early Customer Loyalty programs established the core mechanics of a loyalty program: A purchase was rewarded with a token that could be redeemed for a future purchase. This is a simple 3-step flow:

1. Purchase
2. Reward
3. Redeem

The Roaring 20s

In 1929 Betty Crocker introduced a new approach to Customer Loyalty. The Betty Crocker Customer Loyalty program was the first to use a coupon to reward customers for their loyalty. The coupon was made available as part of the box top.

Betty Crocker also signaled the beginning of brand specific loyalty while being retailer agnostic. In many ways, Betty Crocker provided the blueprint for modern Customer Loyalty programs.

May 1st, 1981

Modern Customer Loyalty programs began on May 1, 1981 when American Airlines introduced AAdvantage which was the first frequent flyer program. Customers were rewarded for their loyalty to the airline.

AAdvantage was the beginning of a new type of loyalty program, a vertical loyalty program. Vertical loyalty programs are programs that reward customers for their loyalty to a single brand while disintermediating 3rd parties (i.e. travel agents).

AAdvantage heralded the beginning of data collection, at scale, to develop a direct connection between the brand and the customer. Rewards were also expanded beyond simple discounts to include experiential rewards such as upgrades and lounge access.

2020s

Over the past 40 years, Customer Loyalty programs have evolved to include a wide variety of rewards and incentives. However, the core mechanics of a loyalty program have remained the same: A purchase is rewarded with a "token/point/mile" that can be redeemed for a future purchase.

So what's next?

Some of the most successful marketers who run leading Customer Loyalty programs are expanding beyond the core mechanics of a loyalty program. Leading marketers are now experimenting with a new type of program that is focused on product usage and customer experience.

Customers don't buy drills, they buy holes.

We've all heard the adage, "customers don't buy drills, they buy holes". Industry leaders are engaging with customers to help them achieve their desired outcome. This is a fundamental shift from the traditional approach of rewarding customers for their loyalty to a brand. This new brand of software is Customer Engagement. While the phrase "customer engagement" is (over)used by many categories of software, this new program is an evolution of Customer Loyalty.

Both Customer Loyalty and Customer Engagement have a role to play:

• Customer Loyalty: reward customer for purchases
• Customer Engagement: reward customers for product usage and engaging in the customer experience

What does Customer Engagement look like in practice?

Let's look at a traditional hotel Customer Loyalty program and what a next generation Customer Engagement program might look like.

A traditional hotel Customer Loyalty program rewards customers for their purchases (i.e. hotel stays). Customer are rewarded with points that can be redeemed for future purchases (i.e. hotel stays). Along with discounts, customers are offered basic experiential rewards such as room upgrades, free breakfast, etc. The current generation of Customer Loyalty programs are valuable tools.

Let's now build on our Customer Loyalty program by complementing it with a Customer Engagement program.

The Customer Engagement program is focused on the larger customer experience. The hotel brand will engage with customers to help them achieve their desired outcome. For example, a customer who wants a relaxing vacation in a warm location for two adults traveling from California in December. The Customer Engagement program will help the customer with their overall experience. From dinner reservations, to local activities, to helping the customer navigate the city, the Customer Engagement program is focused on helping the customer achieve their desired outcome, which is a relaxing vacation for two.

So how does this create value for the brand? The customer is offered a reward for sharing their experience at the hotel's restaurant, relaxing in the pool, and enjoying the local activities. The customer takes photos at the restaurant and shares on social media. The result is the hotel's ideal customer is promoting the brand and location to friends and family, which is the best form of marketing.

The Customer Engagement program reduces friction for the customer by helping plan their vacation. The Customer Engagement program also creates value for the brand by turning the customer into a promoter of the brand.

Bringing it all together

Customer Engagement and Customer Loyalty are two inter-related, yet different applications. Customer Engagement is focused on the customer experience and helping the customer achieve their desired outcome. Customer Loyalty is focused on rewarding customers for their purchases. When combined, Customer Engagement and Customer Loyalty create a powerful combination that drives customer loyalty and brand advocacy.