Customer Incentives

Maintaining customer loyalty through customer incentives is a very common practice of many businesses today. When customers make purchases they can pick whether they get air miles, cash or other customer incentives. Some companies give customer incentives based on the number of purchases they make, for example get one free smoothie after you have purchased six. What is the best customer incentive any company can give? This is really the vital question. The customer incentives need to be structured right in order to maximize the revenue they bring to the companies.

Customer incentive programs are not new; they have been around for 100's of years. In the 1930's stamps were given to customers with purchases from certain merchants and were redeemed after they had collected up to a specified value. In the 1960's supermarkets started giving straight discounts to their consumers. It is currently estimated that over 50% of the population use at least one customer incentive program, and many do not spend unless there is some kind of incentives program involved in their spending. According to some analysts U.S. companies spend more than $1.2 billion on customer incentives programs.

Consumer's perspectives on customer incentive programs play a very important role in whether they are profitable and successful. An Airline can offer customer incentives miles that can be redeemed either as a cash reward or miles or a combination. The combination tends to be perceived as more valuable (get a ticket for $59 + 2,500miles). This is as opposed to paying a single reduced fare or using a predetermined number of miles.

Another way of giving consumers perceived value may be by adjusting their customer incentive program. They might have a program that gives a free item after the purchase of 8 items they can change this to a free item with the purchase of 10 items, but award 2 free "purchases" with the first purchase. There is a perceived added value here for the consumer, inspire of the fact that these two customer incentive programs require the same amount of purchases.

Customer incentive programs are on the rise, the market used to be cornered by airlines credit card companies and hotel rooms, but recently many other companies have found ways to use customer incentive programs. There are also those companies that award points that have no redeemable value (cannot be traded for goods or services) but the consumers are still flocking to collect points. There are also customer incentive programs that are redeemable for goods other than the ones purchased to collect the points.

Customer incentives when used right can generate loyal consumers and attract new ones. When not properly implemented they can very easily cost a company a great deal of money. It has been said that customer incentive programs drive consumers to spend more, however it is really not clear if this is truly the case or if the big spenders are just more likely to join the customer incentives programs. One thing that is clear is that these customer incentive programs need to offer incentives based on consumers spending habits and profitability, otherwise they will not last.