DO REWARDS REALLY CREATE LOYALTY

Although reviled in the business press as short-term fads, rewards pro grams are gaining popularity. Rewards can and do build customers' loya lty. Unfortunately, they are widely misunderstood and often misapplied . A rewards program needs to share value in proportion to the value th e customers' loyalty creates for the company. A company must first mak e sure that its rewards align with company capabilities, then take int o account the five elements that determine value to a customer: cash v alue, choice, aspirational value, relevance, and convenience. Any comp any can attain access to the full set of capabilities. Some businesses choose to band together with others in a rewards network. Louise O'Br ien and Charles Tones, developers of the customer loyalty practice at Bain and Company, explore principles that companies should keep in min d when trying to develop effective value-sharing programs: All custome rs are not equal; value created must exceed value delivered customer b ehavior must drive value sharing; long-term perspective is critical; o ffers must target attractive customers. The authors detail the ways Am erican Express, General Motors, State Farm, Neiman Marcus, Saks Fifth Avenue, MCI, Air Miles, and others are building customer loyalty. The full potential of value sharing through rewards is realized only when customers change their habits to become sustainably loyal. And designi ng effective rewards programs often requires overcoming barriers raise d by functional departments. Senior managers must agree that loyalty p ays and be unrelenting about focusing their organizations and all thei r marketing programs on the goals and measures that will develop custo mer loyalty.